Common Signs Deal With No I.D. and Def Jam

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After years of being a free agent, Common has found a new label home owned by a dear friend. The Chicago rhymer has inked a deal with No I.D.‘s imprint Artium Records via Def Jam Records.

This partnership marks a collaborative reunion between Common and No I.D., who have previously worked together on Com’s four stellar albums: ‘Can I Borrow a Dollar’ (1992), ‘Resurrection’ (1994), ‘One Day It’ll All Make Sense’ (1997) and ‘The Dreamer/The Believer’ (2011).

The dynamic duo will now work closely together to release ‘Nobody’s Smiling,’ Common’s 10th solo album. The set’s first single is the powerful sociopolitical track ‘Kingdom‘ featuring Vince Staples. On the song, Com and Staples rap about the violence that’s crippling Chicago and the citizen’s spiritual well-being.

“Common and I have a long history of making great music together,” said No I.D. “His rich legacy and robust talent are perfect additions to the Def Jam family. It’s particularly significant that he’s coming under our roof for his 10th album as a matured artist and cultural ambassador. It’s a tremendous boost for the spirit of Def Jam as well as the world of hip-hop.”

True indeed.

For Common, signing with Atrium/Def Jam has become his full-circle moment in hip-hop.

“I’m honored to team up with No I.D. and be a part of the Artium and Def Jam family,” he said. “Creating this album and signing to Def Jam feels like a new beginning for me. I feel like a new artist because I created this album with the purpose to give back to my city and to the culture of hip hop. Def Jam is part of the foundation of hip hop and being able to work with No I.D. was returning to my foundation now with new energy and new hunger.”

Congratulations to Common. We can’t wait to hear his new album, ‘Nobody’s Smiling.’

.@Common Signs To No I.D.'s Artium/Def Jam Recordings http://t.co/D10yuzES8E pic.twitter.com/CqD2kmMxmK

— Def Jam Recordings (@DefJamRecords) June 4, 2014

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Common Sense: Netflix Chief Looks Back on Its Near-Death Spiral

It was the thousands of e-mails that poured in from angry and disappointed customers.

“I realized, if our business is about making people happy, which it is, then I had made a mistake,” Mr. Hastings told me this week, in a rare public comment on an episode that could have destroyed the company. “The hardest part was my own sense of guilt. I love the company. I worked really hard to make it successful, and I screwed up. The public shame didn’t bother me. It was the private shame of having made a big mistake and hurt people’s real love for Netflix that felt awful.”

This week, Netflix announced that it gained three million subscribers globally in the first quarter and that revenue for the quarter exceeded $1 billion, a record for the company. On Tuesday, the stock jumped 22 percent, the first time it has traded over $200 since the Qwikster episode, and it is up 135 percent so far this year, making Netflix the best-performing company in the Standard & Poor’s 500-stock index. The company is basking in the critical glow of its original series, “House of Cards,” and this month narrowly surpassed HBO in total subscribers.

In the annals of corporate missteps, there are few parallels to such a rebound from what once looked like a death spiral, especially in the momentum-driven world of technology. Zynga, the online game maker, and Groupon, the Internet coupon company, are struggling with brutal competition. In an old-economy industry like retail, J. C. Penney was in the midst of a similarly bold attempt to reposition the company when it fired its chief executive, and is now fighting to survive.

How did Netflix simultaneously manage both a fundamental transformation of the company and a public relations disaster?

Mr. Hastings said he realized that the company’s attempt to both raise prices and separate into two companies, one the legacy DVD-by-mail business and the other the up-and-coming broadband streaming business, was trying to do too much too fast. Angry subscribers abandoned the company in droves (800,000 in the fourth quarter of 2011 alone), revenue missed estimates and the stock plunged.

“I messed up,” Mr. Hastings wrote in an unusually forthright September 2011 blog post. Citing the precedents of AOL and Borders Books, which struggled or failed to make the digital transition, “my greatest fear at Netflix has been that we wouldn’t make the leap from success in DVDs to success in streaming.” But in the rush to accelerate the transition, he wrote, “In hindsight, I slid into arrogance based upon past success.” He also made a video apology.

Mr. Hastings said he didn’t expect the apology alone to “turn it around,” adding, “I wasn’t naïve enough to think most customers care if the C.E.O. apologizes, but I thought it was honest and appropriate.”

The mea culpa resonated, though, with some important constituencies, including some Wall Street analysts, who were punishing the company’s stock. Richard Greenfield, an influential media analyst at BTIG, said that he was impressed that Mr. Hastings “realized his mistakes and openly admitted them.”

“He dusted himself off, stood back up and started running,” Mr. Greenfield said. “Very few people can do that.”

Still, Mr. Hastings said, “The situation made me nervous and very focused.

“I couldn’t say with confidence that we’d recover. We were in a place that was quite risky. We didn’t have the reserves to make a second stumble.”

On the other hand, he didn’t panic, and he didn’t lose confidence. Although he made some big changes, like scrapping Qwikster, he never questioned his original vision for the company, which he helped found in 1997. Nor did he lunge at supposedly transformative opportunities that were pressed upon him — a lesson he learned from a four-year war with Blockbuster that began in 2004, when Blockbuster, then the dominant and much larger DVD distributor, tried and failed to crush its upstart competitor.

“There were elements of panic in my reaction back then,” Mr. Hastings said. “We got desperate and we did some dumb things.” (He cited online advertising on the Web site; starting Red Envelope, an independent film producer and distributor, since shut down; and buying DVDs out of the Sundance Film Festival.) “After we eventually won the Blockbuster battle, I looked back and realized all those things distracted us. They didn’t help, and they marginally hurt. The reason we won is because we improved our everyday service of shipping and delivering. That experience grounded us. Executing better on the core mission is the way to win.”

Common Sense: Hewlett-Packard and Its Obstinate Director

Would that it were so easy.

“Each one of our directors considered the results of our recent shareholder meeting and made the personal decision to do what they felt was best for H.P.,” the company’s new interim chairman, Ralph Whitworth, said. “Today’s announcement is a testament to our chairman’s and departing board members’ statesmanship and sterling professional standards.”

But to the dismay of some directors and shareholders, when it came to Mr. Lane, it took the combined efforts of the company’s chief executive, Meg Whitman, other board members and Dodge & Cox, the mutual fund company that is H.P.’s largest shareholder, to get Mr. Lane to give up the chairman’s title, people with knowledge of the board’s deliberations said. Even then, Mr. Lane refused to leave the board entirely, and other directors were unwilling to force the issue.

H.P. is hardly alone when it comes to the delicate issue of resignations by board members. Even in the rare instances when shareholders vote against proposed directors, it can be difficult to persuade one to resign. And if they don’t, the only way a board can remove them is by not nominating them at the next election. “It’s a huge issue,” said Anne Simpson, director of corporate governance for the California Public Employees’ Retirement System, the giant California state pension fund. Calpers voted against Mr. Lane and several other H.P. directors.

After a tumultuous few years in which H.P.’s board hired and then fired a new chief executive, acquired the software maker Autonomy for $11.1 billion and then wrote off most of the investment, and watched its stock price plunge more than 50 percent, some major shareholders and proxy advisory services recommended shareholders withhold their votes for several directors. Although all the directors were re-elected, Mr. Lane and two other directors, John Hammergren and G. Kennedy Thompson, received less than 60 percent of the vote, which by the standards of shareholder democracy is considered a repudiation.

When the board met to consider how to respond, Mr. Hammergren and Mr. Thompson readily agreed to step down, according to several people knowledgeable about the deliberations. They said Mr. Hammergren had wanted to resign even before the election, but was persuaded to run because of the difficulty at the time of finding a new candidate given the much-publicized turmoil at the company.

But Mr. Lane was another matter. Dodge & Cox voted its shares against Mr. Lane, which is considered especially significant because the San Francisco-based company almost never votes against management recommendations. According to disclosure forms covering the period from January 2009 through June 2012, Dodge & Cox supported management’s recommendations on directors 100 percent of the time. Dodge & Cox executives met with Mr. Lane to explain the firm’s reasoning.

Asked for comment, Charles Pohl, co-president and chief investment officer at Dodge & Cox, responded, “Dodge & Cox addresses corporate governance in many ways, from discussions with management to at times withholding votes for directors.”

Mr. Lane also met privately with Ms. Whitman.

Mr. Lane told me this week that he listened to what Dodge & Cox had to say, but that the only message he heard was that the board wanted him to stay, and that any notion he had to be pressured is “fiction.” He continued: “I didn’t feel any pressure at all other than the pressure of the vote. If you get less than an 80 percent vote, it’s something you have to think about. I told the board I’d leave any time they wanted and they said, ‘No, please don’t leave.’ I stepped down as chairman because I thought it was the right thing to do.”

Charles Elson, a professor of law at the University of Delaware and an expert on corporate governance, questioned Mr. Lane’s continued membership on the board. “If it’s true that other directors and shareholders want you to depart, and you don’t, it’s very difficult to do your job effectively. You’ve become a lightning rod. Your presence may be detracting from the company. Why would you want to stay?”

Common Sense: Why Bad Directors Aren’t Thrown Out

Imagine having to run on this track record:

¶ After ousting Mark Hurd as chief executive in 2010 amid messy accusations of sexual harassment, the board hired Léo Apotheker to replace him, even though Mr. Apotheker had been fired as chief of the European software giant SAP after just seven rocky months. Most of the board didn’t bother to meet Mr. Apotheker, let alone ask him any probing questions about his tenure at SAP, before rubber-stamping the choice of the board’s four-member search committee.

¶ In 2011, H.P.’s directors unanimously approved the acquisition of the British software maker Autonomy for $11.1 billion, a deal that was considered wildly overpriced even at the time. Less than a year later, H.P. wrote off $8.8 billion of that and claimed it had been defrauded. (Autonomy officials have denied the allegations, which are being investigated by authorities in both the United States and Britain.) Some consider Autonomy to be the worst corporate acquisition in business history. In the 2012 fiscal year, H.P. wrote off a total of $18 billion related to failed acquisitions and other missteps.

¶ With Mr. Apotheker at the helm and the board backing his strategic initiatives, H.P. announced that it was considering abandoning its giant personal computer business, then changed its mind. After Mr. Apotheker had been on the job a disastrous 11 months, the board demanded his resignation, and then paid him more than $13 million in termination benefits.

Shareholders might have forgiven what Fortune magazine called a “tawdry reality show” if the stock had performed well. But from the time Mr. Apotheker was hired in September 2010 until he left in 2011, the stock went from more than $45 a share to a little more than $22. Despite a recent rally, shares are still below $24, even as the Dow Jones and Standard & Poor’s 500-stock indexes are hitting new highs.

“You really couldn’t have a stronger case for removing directors,” Michael Garland, executive director for corporate governance in the New York City comptroller’s office, told me this week. “There’s been a long series of boardroom failures that have harmed the reputation of the company and repeatedly destroyed shareholder value over an extended period of time.”

Yet all 11 H.P. directors were re-elected on March 20.

H.P. is hardly an isolated case. According to Patrick McGurn, special counsel for one of the major shareholder advisory services, Institutional Shareholder Services, shareholder efforts to remove directors in uncontested elections rarely succeed or come close, even in egregious circumstances. Last year, there were elections for 17,081 director nominees at United States corporations, according to the service. Only 61 of those nominees, or 0.36 percent, failed to get majority support. More than 86 percent of directors received 90 percent or more of the votes. Of the 61 directors who failed to get majority approval, only six actually stepped down or were asked to resign. Fifty-one are still in place, as of the most recent proxy filings.

“People are calling them zombie directors,” Mr. McGurn said. But that hasn’t stopped them from serving on boards for what is typically lucrative compensation for relatively little work. (H.P.’s directors received a mix of cash and stock payments ranging from $292,000 to $380,000 in 2012.

While the H.P. board has been largely reconstituted since the Apotheker debacle, all but one (Ralph Whitworth, a well-known value investor who joined in November 2011) approved the disastrous Autonomy deal. Raymond Lane, seen as an ally and supporter, at least initially, of Mr. Apotheker, was named chairman at the same time Mr. Apotheker took the helm. Working closely with Mr. Apotheker, Mr. Lane proposed five new directors. John Hammergren, chief of the McKesson Corporation, has been on the board for eight years, and G. Kennedy Thompson, chief of Wachovia before it was forced into a merger with Wells Fargo during the financial crisis, has been a board member for seven years. Mr. Hammergren was on the search committee that recommended Mr. Apotheker’s appointment.

In its proxy materials, H.P. didn’t address the company’s record under these directors, but nonetheless recommended that shareholders vote for the entire slate, citing the risk of “destabilizing” the company by changing directors in an “abrupt and disorderly manner.” As to Mr. Lane, Mr. Hammergren and Mr. Thompson, it repeatedly cited their “experience” in running global companies, but said nothing about their roles in selecting Mr. Apotheker or other directors, the Autonomy acquisition, other failed strategic initiatives or, indeed, anything at all about their tenures at H.P.

This article has been revised to reflect the following correction:

Correction: March 29, 2013

An earlier version of this article used outdated figures for the board’s compensation in 2012. The directors received a mix of cash and stock payments ranging from $292,000 to $380,000 in 2012, not $290,000 to $355,000, which was the payment range for 2011. The earlier version also misstated the compensation of Mr. Lane, the board chairman, for 2012. He received neither a cash award nor equities in 2012, though he received two large equity awards in 2011.

Common Sense: At Google, a Place to Work and Play

Yahoo employees should be so lucky.

Whatever else might be said about Yahoo’s workplace, it’s a long way from Google’s, as I discovered this week when I dropped in at Google’s East Coast headquarters, a vast former Port Authority shipping complex that occupies a full city block in the Chelsea neighborhood of Manhattan. Yahoo set off a nationwide debate about workplace flexibility, productivity and creativity last month after a memo with the directive surfaced on the Internet. “We need to be one Yahoo, and that starts with physically being together,” read the memo from Jackie Reses, Yahoo’s director of human resources, which went viral after Kara Swisher posted it on AllThingsD.

The discussion may have been all the more heated since the ban was imposed by one of the relatively few female chief executives, one who had a nursery built near the executive suite after she gave birth last year.

Google’s various offices and campuses around the globe reflect the company’s overarching philosophy, which is nothing less than “to create the happiest, most productive workplace in the world,” according to a Google spokesman, Jordan Newman. But do its unorthodox workplaces and lavish perks yield the kind of creativity it prides itself on, and Yahoo obviously hopes to foster?

Mr. Newman, 27, who joined Google straight from Yale, and Brian Welle, a “people analytics” manager who has a Ph.D. in industrial and organizational psychology from New York University, led me on a brisk and, at times, dizzying excursion through a labyrinth of play areas; cafes, coffee bars and open kitchens; sunny outdoor terraces with chaises; gourmet cafeterias that serve free breakfast, lunch and dinner; Broadway-theme conference rooms with velvet drapes; and conversation areas designed to look like vintage subway cars.

The library looks as if Miss Scarlet (from the board game Clue) has just stepped out, leaving her incriminating noose (in the form of a necktie) prominently draped on the back of an oversize wing chair. A bookcase swings open to reveal a secret room and even more private reading area. Next to the recently expanded Lego play station, employees can scurry up a ladder that connects the fourth and fifth floors, where a fiendishly challenging scavenger hunt was in progress. Dogs strolled the corridors alongside their masters, and a cocker spaniel was napping, leashed to a pet rail, outside one of the dining areas.

Google lets many of its hundreds of software engineers, the core of its intellectual capital, design their own desks or work stations out of what resemble oversize Tinker Toys. Some have standing desks, a few even have attached treadmills so they can walk while working. Employees express themselves by scribbling on walls. The result looks a little chaotic, like some kind of high-tech refugee camp, but Google says that’s how the engineers like it.

“We’re trying to push the boundaries of the workplace,” Mr. Newman said, in what seemed an understatement.

In keeping with a company built on information, this seeming spontaneity is anything but. Everything has been researched and is backed by data. In one of the open kitchen areas, Dr. Welle pointed to an array of free food, snacks, candy and beverages. “The healthy choices are front-loaded,” he said. “We’re not trying to be mom and dad. Coercion doesn’t work. The choices are there. But we care about our employees’ health, and our research shows that if people cognitively engage with food, they make better choices.”

So the candy (M&Ms, plain and peanut; TCHO brand luxury chocolate bars, chewing gum, Life Savers) is in opaque ceramic jars that sport prominent nutritional labels. Healthier snacks (almonds, peanuts, dried kiwi and dried banana chips) are in transparent glass jars. In coolers, sodas are concealed behind translucent glass. A variety of waters and juices are immediately visible. “Our research shows that people consume 40 percent more water if that’s the first thing they see,” Dr. Welle said. (Note to Mayor Bloomberg: Perhaps New York City should hide supersize sodas rather than ban them.)

Craig Nevill-Manning, a New Zealand native and Google’s engineering director in Manhattan, was the impetus behind the company’s decision to hire a cadre of engineers in New York, and he led an exodus to Chelsea from what was a small outpost near Times Square. “I lobbied for this building,” he told me. “I love the neighborhood. You can live across the street. There are bars and restaurants.”

Common Sense: Google Finds a Line Between ‘Aggressive’ and ‘Evil’

“Don’t Be Evil,” the founders of Google, Larry Page and Sergey Brin, proclaimed in their 2004 “Owner’s Manual” for prospective investors in the company. Despite widespread cynicism, criticism and even mockery, the company has never backed down on this core premise, reiterating in its most recent list of the “things we know to be true” that “you can make money without doing evil.”

Jon Leibowitz, chairman of the F.T.C., at the announcement of its Google antitrust ruling.

Yet the company has been dogged for years by widespread allegations that it violates its own pledge by manipulating the search results that remain the core of the company and the primary source of its enormous profits.

Google insists that its results have always been “unbiased and objective” and that they are “the best we know how to produce.” But for competitive reasons, it never disclosed the secret algorithms that produce those results, so no one outside the company knew for sure. A growing chorus of complaints from companies like Expedia, Yelp and, especially, Microsoft that Google manipulates the results to favor its interests at the expense of competitors led both the United States government and the European Union to take up the issue. On Thursday, after nearly two years of investigation, the Federal Trade Commission rendered a verdict: Google isn’t evil.

It may have been “aggressive,” as the commission delicately put it. But “regarding the specific allegations that the company biased its search results to hurt competition, the evidence collected to date did not justify legal action by the commission,” said Beth Wilkinson, outside counsel to the F.T.C. “The F.T.C.’s mission is to protect competition, and not individual competitors.”

The decision is “a huge victory for Google,” Randal Picker, a professor of commercial law at the University of Chicago Law School and a specialist in antitrust and intellectual property, told me just after this week’s decision.

It’s also a vindication of the integrity of Google’s search results and the company’s credibility. “There’s never been any evidence that consumers were harmed by Google’s practices, and no evidence that Google ever engaged in any manipulation that violates antitrust law,” said Eric Goldman, a professor of law and director of the High Tech Law Institute at Santa Clara University School of Law.

The decision is also likely to set standards for competition on the Internet for years to come. It’s a blow to competitors like Microsoft, which has been stirring up opposition to Google for years, not to mention newer rivals like Facebook, Apple and Amazon. “The gloves will be off,” Professor Picker predicted. “The F.T.C. has indicated it’s going to be taking a very cautious approach toward regulating competition on the Internet.”

But will the decision ultimately prove to be good for consumers?

The F.T.C. did secure some concessions from Google regarding patent licensing and advertiser options. But to call those a slap on the wrist would be an overstatement.

What mattered most to both Google users and competitors was Google’s search practices, which had never been put under the regulatory microscope to such a degree and which the F.T.C. left untouched.

Google’s search results have evolved significantly from its early, simpler days. When I searched for “flight JFK to LAX” this week, I got three categories of results: paid ads at the top and on the right; a Google-produced chart comparing flight options with the disclaimer, which you need to click on, that “Google may be compensated by these providers”; and so-called organic results below that. The first two organic results were entries for Expedia, a rival to Google’s travel site. But given the layout and size of my screen, none of the organic results were visible unless I scrolled down.

However clearly labeled, the prominence of Google’s own travel results gives pause to some antitrust experts. “Location is important,” Professor Picker said. “No one thinks otherwise. Years ago, it was important for airlines’ reservations systems to be on the first screen. But I’m not sure this is an antitrust problem.”

Common Sense: H.P.’s Autonomy Blunder Might Be One for the Record Books

The deal was considered so bad, and such an object lesson for a generation of deal makers and corporate executives, that it seemed likely never to be repeated, rivaled or surpassed.

Until now.

Hewlett-Packard’s acquisition last year of the British software maker Autonomy for $11.1 billion “may be worse than Time Warner,” Toni Sacconaghi, the respected technology analyst at Sanford C. Bernstein, told me, a view that was echoed this week by several H.P. analysts, rivals and disgruntled investors.

Last week, H.P. stunned investors still reeling from more than a year of management upheavals, corporate blunders and disappointing earnings when it said it was writing down $8.8 billion of its acquisition of Autonomy, in effect admitting that it had overpaid by an astonishing 79 percent.

And it attributed more than $5 billion of the write-off to what it called a “willful effort on behalf of certain former Autonomy employees to inflate the underlying financial metrics of the company in order to mislead investors and potential buyers,” adding, “These misrepresentations and lack of disclosure severely impacted H.P. management’s ability to fairly value Autonomy at the time of the deal.”

In an unusually aggressive public relations counterattack, Autonomy’s founder, Michael Lynch, a Cambridge-educated Ph.D., has denied the charges and accused Hewlett-Packard of mismanaging the acquisition. H.P. asked Mr. Lynch to step aside last May after Autonomy’s results fell far short of expectations.

But others say the issue of fraud, while it may offer a face-saving excuse for at least some of H.P.’s huge write-down, shouldn’t obscure the fact that the deal was wildly overpriced from the outset, that at least some people at Hewlett-Packard recognized that, and that H.P.’s chairman, Ray Lane, and the board that approved the deal should be held accountable.

A Hewlett-Packard spokesman said in a statement: “H.P.’s board of directors, like H.P. management and deal team, had no reason to believe that Autonomy’s audited financial statements were inaccurate and that its financial performance was materially overstated. It goes without saying that they are disappointed that much of the information they relied upon appears to have been manipulated or inaccurate.”

It’s true that H.P. directors and management can’t be blamed for a fraud that eluded teams of bankers and accountants, if that’s what it turns out to be. But the huge write-down and the disappointing results at Autonomy, combined with other missteps, have contributed to the widespread perception that H.P., once one of the country’s most admired companies, has lost its way.

Hewlett-Packard announced the acquisition of Autonomy, which focuses on so-called intelligent search and data analysis, on Aug. 18, 2011, along with its decision to abandon its tablet computer and consider getting out of the personal computer business. H.P. didn’t stress the price — $11.1 billion, or an eye-popping multiple of 12.6 times Autonomy’s 2010 revenue — but focused on Autonomy’s potential to transform H.P. from a low-margin producer of printers, PCs and other hardware into a high-margin, cutting-edge software company. “Together with Autonomy we plan to reinvent how both structured and unstructured data is processed, analyzed, optimized, automated and protected,” Léo Apotheker, H.P.’s chief executive at the time, proclaimed.

Autonomy had already been shopped by investment bankers by the time H.P. took the bait. But others who examined the data couldn’t come anywhere near the price that Autonomy was seeking. An executive at a rival software maker, Oracle, a company with many successful software acquisitions under its belt, told me: “We looked at Autonomy. After doing the math, we couldn’t make it work. We couldn’t figure out where the numbers came from. And taking the numbers at face value, even at $6 billion it was overvalued.” He didn’t want to be named because he was criticizing a competitor.

Common Sense: Apple’s Map App Could Raise Antitrust Concerns

These milestones were reached with the steady hand of Timothy D. Cook at Apple’s helm, but they seem inseparable from Mr. Jobs. They are the result of initiatives begun during his tenure and, in many ways, reflect his personality — one that was perfectionist, competitive, driven and controlling.

Those qualities have remained on display at Apple in the year since his death, most recently in the decision to substitute Apple mapping software for rival Google’s in the iPhone 5 and the new iOS 6 operating system, as well as allegations that Apple and book producers conspired to control the price of e-books.

Apple hasn’t fully explained its decision to replace Google’s maps, but it probably reflects the evolution of the Apple-Google relationship from close allies to fierce competitors, a process that began well before Mr. Jobs’s death. Apple also hasn’t indicated whether it was carrying out Mr. Jobs’s wishes, but the decision seems consistent with his “compulsion for Apple to have end-to-end control of every product that it made,” as Walter Isaacson put it in his book “Steve Jobs.”

Apple’s use of its own mapping technology in the iPhone appears to be a textbook case of what’s known as a tying arrangement, sometimes referred to as “bundling.” In a tying arrangement, the purchase of one good or service (in this case the iPhone) is conditioned on the purchase or use of a second (Apple maps).

To the degree that tying arrangements extend the control of a dominant producer, they may violate antitrust laws. Probably the best-known example was Microsoft’s attempt to bundle its Internet Explorer browser on Windows software, to the disadvantage of Netscape, a rival browser, despite complaints that Explorer was initially an inferior product. This was the linchpin of the government’s 1998 antitrust case against Microsoft. E-mails were introduced as evidence in which Microsoft executives indiscreetly stated their intentions to “smother,” “extinguish” and “cut off Netscape’s air supply” by bundling Explorer with Windows.

Among other findings, the judge ruled that Microsoft had engaged in an illegal tying arrangement. The outcome of the case kept the door open to competition in the browser market. Today, the once-dominant Internet Explorer faces stiff competition from rivals like Mozilla Firefox and Google Chrome. Microsoft’s settlement came too late for Netscape’s browser, which was no longer being developed or supported after 2007. But Firefox traces its lineage to Netscape’s source code.

Could Apple’s map suffer a similar fate?

Early users searched for locations and got nonsensical results. Mad magazine ran a parody of the famous Saul Steinberg New Yorker cover of the world seen from Ninth Avenue “now using Apple Maps,” in which the Hudson was the Sea of Galilee and other landmarks were ludicrously misidentified.

Mr. Cook swiftly tried to contain the damage. “Everything we do at Apple is aimed at making our products the best in the world. We know that you expect that from us, and we will keep working nonstop until Maps lives up to the same incredibly high standard,” he said a week ago.

Would Mr. Jobs have been so quick to apologize? Perhaps not. He was famously resistant to the idea after complaints about the iPhone 4’s antenna, and the Apple “genius” manual instructs employees never to apologize for the quality of Apple technology.

Bundling its maps with the iPhone 5 may yet prove to be a strategic blunder for Apple, but it may nonetheless skirt the boundaries of the antitrust laws that tripped up Microsoft. “There’s no antitrust theory under which vertically integrating into an inferior component is considered anticompetitive,” Herbert Hovenkamp, an antitrust professor at the University of Iowa College of Law, told me. That’s because the problem is considered self-correcting by market forces. “There have been lots of complaints about tying arrangements involving inferior products. But ordinarily, incorporating an inferior product doesn’t increase your market share, because consumers leave for a better product. It’s not a promising strategy,” Professor Hovenkamp said. The danger for Apple is that customers will choose an Android phone with a superior Google Maps application rather than an iPhone.

An exception is when a monopolist does it, which is what happened with Microsoft. If a consumer used Microsoft Windows, the dominant software, Explorer was installed by default. “This arose with Microsoft because back then Explorer was considered inferior and quirky,” Professor Hovenkamp said. “But that wasn’t why it was a violation. It’s because consumers had no choice.” By contrast, Apple’s iOS isn’t the dominant smartphone operating system. Apple’s software has captured 17 percent of the global smartphone market, compared with 68 percent for Google’s Android. Apple users who want Google maps can readily switch to an Android phone. “Most tying arrangement cases have involved firms with close to 100 percent market shares,” Professor Hovenkamp noted.

The real test will be whether Apple makes rival mapping apps readily available for downloading on its iPhones. In his apology, Mr. Cook suggested that iPhone users try alternatives, and even suggested using Google maps by going to Google’s Web site. Google said it was working on a map application for the iPhone.

From an antitrust perspective, the e-books controversy is more serious. United States antitrust authorities have accused Apple of conspiring with major book publishers to raise e-book prices, and Apple offered to settle a European investigation into the same practices. The Justice Department cited a passage in Mr. Isaacson’s book in which Mr. Jobs called the strategy an “aikido move,” referring to the Japanese martial art, and said, “We’ll go to the agency model, where you set the price, and we get our 30 percent, and yes, the customer pays a little more, but that’s what you want anyway.”

The charges describe a classic price-fixing arrangement, “which is presumptively illegal,” Professor Hovenkamp said. “Everybody wants market dominance, not just Apple. But it’s how you go about it. You can’t go out and fix prices.” Apple has denied the charges, and a trial has been set for next year.

Mr. Cook’s challenge has always been to guide Apple out of the shadow of its visionary and charismatic founder. Can he encourage Mr. Jobs’s competitive zeal and drive for perfection while distancing Apple from Mr. Jobs’s potentially damaging — even unlawful — need to dominate and control? “Historically, Apple hasn’t been very sensitive to antitrust issues,” Professor Hovenkamp said.

There’s no quarreling with Apple’s extraordinary success, and Mr. Jobs’s obsession with controlling all aspects of Apple’s products clearly paid off for its customers and shareholders. It proved to be the right strategy for the time. But competition in smartphones and Apple’s other efforts has intensified in the year since Mr. Jobs died, and Apple may not be able to continue blindly down that path. With his swift apology for the imperfections of Apple’s maps, Mr. Cook seems to have taken a step in the right direction. If he also settles the e-books case and makes Google’s and other map applications readily available to iPhone users, he’d be signaling a clear break from the past and encouraging Apple to embrace, rather than stifle, competition.

This article has been revised to reflect the following correction:

Correction: October 5, 2012

An earlier version of this column referred incorrectly to a case in which Microsoft resolved anticompetitive concerns by agreeing to offer users a choice of browser. The agreement was part of a 2009 settlement of a European antitrust case, not the United States government's 1998 antitrust case.

Common Sense: IPhone Fever? Don’t Count Samsung Out

By many measures, Samsung Electronics should be on the ropes. Last month, it lost an important patent battle with its rival Apple after a jury in the United States ruled that Samsung had illegally copied aspects of Apple’s groundbreaking iPhone. Apple introduced its newest model, the iPhone 5, to enthusiastic reviews and a worldwide consumer frenzy, with customers lining up to buy the new model days before it arrived in stores on Friday. This week, Apple shares hit a record high and cracked the $700 threshold.

Shoppers entered the flagship Apple store in New York early on Friday as the new iPhone went on sale.

An Apple iPhone 4s, left, and a Samsung Galaxy S III.

So why is Samsung not only holding its own, but thriving?

Even as the Apple juggernaut has rolled over Research in Motion, which makes BlackBerry handsets, and Nokia, Samsung reported record earnings for its latest quarter, which ended June 30. Its handset profits, fueled by the introduction of its high-end Galaxy S III model in May, leapt 75 percent over the previous year. Samsung’s stock has gained over 65 percent in the last year and was trading this week on the Korea Exchange at more than 1.3 million won, also close to a record.

Samsung can’t claim the intense media coverage, the passionate fan base or the cult of personality that grew up around Steve Jobs. But the giant South Korean manufacturer has built an impressive lead in global mobile phone sales. The research firm IDC reported that Samsung had 24.1 percent of the global handset market compared with Apple’s 6.4 percent at the end of the last quarter. Samsung also had a commanding lead in the lucrative smartphone market: 32.6 percent compared with Apple’s 16.9 percent, although the gap is likely to narrow because of the iPhone 5’s introduction.

By contrast, Nokia’s share of the smartphone market withered to 6.6 percent and Research in Motion, whose BlackBerry devices once accounted for nearly 20 percent of global smartphone sales, was no longer ranked among the top five producers.

These results didn’t come as a complete surprise to me. As I reported a little over a year ago, after testing the latest handsets from Apple, Samsung and RIM, I ended up buying the Samsung Charge, a decision that surprised me, since I thought I wanted the same iPhone 4 all my cool friends had. The BlackBerry was sadly lacking, and the iPhone was a strong contender. What won me over was Samsung’s large screen. Despite my large hands, I could type on the virtual keyboard with a fair degree of accuracy. (Try correcting typos when you’re frantically searching for information on a Web browser or entering passwords.) Photos also looked better, and Samsung’s 4G was faster, although I often found myself stuck in a 3G backwater. And it still fit in my pocket.

I can’t say my subsequent experience has been flawless. At one point the Charge stopped functioning, a failure that stumped the technicians at a Verizon service center. But they replaced the phone at no charge to me, and thanks to Google, all my contact information was backed up and easily migrated to the new device. Since then, I’ve been comfortably embedded in a seamless Android world of e-mail, maps, directions, search and Web browsing even while continuing to use other Apple products.

But the competitive landscape has changed in just a year, with Samsung’s introduction of the Galaxy S III and now Apple’s release of the iPhone 5. My Charge already seems obsolete. Apple appears to have addressed all the issues that bothered me about the iPhone 4: the screen is bigger (though still not as big as the Charge’s or the Galaxy’s) and it offers 4G. It’s also lighter and, in my view, looks better than my Charge. But Samsung is so confident that its Galaxy S III holds up favorably to the iPhone 5 that it started an aggressive national advertising campaign with a head-to-head comparison between the two handsets, highlighting a list of features the iPhone lacks. And Samsung said it has a more sophisticated Galaxy handset waiting in the wings that will offer an even bigger screen.

Several experts and analysts I spoke to this week said that Samsung was a formidable competitor that had moved ahead of Apple in some aspects. Samsung “has come out with really attractive phones,” Toni Sacconaghi, senior technology analyst at Sanford C. Bernstein & Company, said. “They have large screens, great display, faster processors than Apple. Apple hasn’t been at the front edge of hardware design for a couple of years.”

Tero Kuittinen, an analyst at the mobile communications consulting firm Alekstra, agreed. “The iPhone has remained pretty much static now for three generations,” he said. “The first iPhone was a revelation, in a class of its own.” With Apple holding on to the same interface for five years, “you can still claim the interface is better, but the difference has been shrinking every year,” he said. “On display, you can argue Samsung has taken the lead. Maybe you can slam Samsung for being an imitator, but when they imitate, they do it right.”

This article has been revised to reflect the following correction:

Correction: September 21, 2012

An earlier version of this column included a quotation from an analyst misstating how long Apple has retained its iPhone interface. It has been five years, not seven.

Common Sense: Sites Like Groupon and Facebook Disappoint Investors

Just a year ago, social media seemed the next big thing. With dizzying user growth at Twitter, Zynga and especially Facebook, investors were euphoric about Internet sites that connected people with shared interests and experiences, seemingly the perfect media for targeted advertising.

The professional networking and job search site LinkedIn was first to test the public’s appetite when it went public in May 2011. Its shares more than doubled to close at $94.25 after trading as high as $122.70 that first day.

Early investors were understandably giddy, but others, like the former Treasury secretary Lawrence H. Summers, sounded a cautionary note. “Who could have imagined that the concern with respect to any American financial asset, just two years after the crisis, would be a bubble?” Mr. Summers asked at the time. Over the last year, Internet companies like Groupon, Zynga and Yelp made their public debuts. Facebook followed in May at $38 a share, instantly giving the newly minted public company a valuation of nearly $105 billion. Since then, euphoria has given way to mounting anxiety.

Facebook hasn’t closed above $38 since. The initial offering was widely deemed a debacle both for trading glitches and for the need for underwriters to prop up the stock.

The shares’ subsequent decline accelerated after the company’s first earnings report as a public company late last month dashed investors’ hopes for torrid growth.

This week was the end of the lockup period, which barred insiders from immediately selling their shares, and Facebook shares hit a new low, slumping to $19.05.

Other Internet companies have fared even worse.

Like Facebook, the Internet discount coupon site Groupon increased its offering price and number of shares just before its public debut last November. After rejecting a $6 billion takeover bid from Google in December 2010, Groupon shares closed at $26.11 on its first day of trading, up from its $20 offering price, giving it a market value of $13 billion.

It has been pretty much downhill ever since. On Friday, Groupon shares fell to $4.75, a decline of more than 75 percent from its offering price, giving it a market capitalization of just over $3 billion, barely half what Google offered.

Zynga, a company that makes online social games, went public in December at $10 and dropped 5 percent its first day. Although it traded above $14 a share as recently as March, it ended the week at $3, down 70 percent.

Shares of even the best-performing social media sites have stagnated. Yelp’s shares, which jumped 64 percent on their first day of trading in March to close at $23, were below $22 this week. And LinkedIn, considered by many to be the gold standard for social media concerns, never again hit its opening peak, and ended the week below $102.

Twitter and LivingSocial have put the brakes on going public; the companies have recently said they’re in no rush. That’s hardly surprising.

What went wrong?

Every company has its own story, but the euphoria over social media companies as a group was rooted in what economists call the network effect. The more users a site attracts, the more others will want to use it, which creates a natural monopoly and a magnet for advertisers.

Facebook has been a classic example. If your friends, colleagues or classmates are all on it, you’re all but compelled to join. But evidence that the network effect is working requires rapid growth in users and revenue, especially during the early stages of a company’s public life. So far, social media has failed to deliver the kind of growth that would bolster investor optimism, let alone euphoria.

The network effect is a double-edged sword, Ken Sena, a consumer Internet analyst at Evercore, told me this week.

“The network effect allowed these companies to grow so fast, but the decline can be just as ferocious,” Mr. Sena said. “If any of them misstep with users, they can leave, and the network effect goes into reverse.” The textbook case is Myspace, once the most visited social networking site, that is now a shadow of its former self.

This week’s Groupon earnings illustrated the problem for social media companies. In theory, Groupon should benefit from the network effect. The more users it attracts, the more merchants will want to offer coupons through Groupon, and vice versa. And on the face of it, the earnings report looked good. Groupon earned a profit of $28.4 million for the quarter, above analysts’ expectations, reversing a loss a year ago. Groupon’s boyish-looking chief executive, Andrew Mason, called it a “solid quarter.”

Common Sense: EBay’s Turnaround Defies Convention for Internet Companies

David Paul Morris/Bloomberg NewsJohn Donahoe has led a revival of eBay. “Our multiyear effort is paying off,” he said.

Remember Myspace, Friendster, eToys, Webvan, Urban Fetch, Pets.com? Like meteors, they burned with dazzling brilliance before turning shareholder dollars to ash. EBay, Yahoo and AOL, the dominant Internet triumvirate circa 2004, seemed destined for a similar fate. The conventional wisdom has been that once decline sets in at an Internet company, it’s irreversible.

But that was before eBay’s latest earnings surprise, which sent its stock soaring and had analysts scrambling to raise their projections. “Can Internet companies ever turn around? The answer has been no,” Ken Sena, Internet analyst at Evercore, told me this week. “But now, there’s eBay. The answer may turn out to be yes.”

If so, eBay’s success has big implications for struggling companies like Yahoo and AOL, not to mention more recent sensations that have already lost some luster, like Zynga, Groupon and even Facebook, whose shares tumbled this week after its first earnings report as a public company disappointed investors. “EBay has demonstrated that it’s possible to turn the corner even against long odds,” said David Spitz, president and chief operating officer of ChannelAdvisor, an e-commerce consulting company.

EBay shares hit a peak of over $58 in 2004 and made its chief executive, Meg Whitman, a Silicon Valley celebrity. But by November 2007, when she stepped down to enter politics, the telltale signs of decline had set in. Its stock was slumping. Its dominant online auction business had matured, and growth had slowed. Sellers complained about higher fees and poor support. That year, eBay wrote off $1.4 billion on its poorly conceived $2.5 billion acquisition of the calling service Skype, recording its first loss as a public company. Analysts worried that eBay had lost its quirky soul, and was abandoning the flea market auction model that had made it distinctive and dominant in online auctions. By early 2009, its stock was barely over $10, down over 80 percent from its peak.

Ms. Whitman was succeeded by a former Bain & Company managing director, John Donahoe. “One of the unique things about the Internet is a company can be a white-hot success and become a global brand and reach global scale in just a few years — that’s the good news,” he told me this week. “But then somebody can turn around and do it to you. There’s constant disruption. One of the first things I had to do here was face reality. EBay was getting disrupted.”

Little more than four years after taking charge, a buoyant Mr. Donahoe sounded like the chief executive of a surging start-up when he announced eBay’s latest results on July 18. So thoroughly has eBay been transformed that he didn’t even mention its traditional auction business. “Our multiyear effort is paying off,” he said. Profit more than doubled and revenue jumped 23 percent. “EBay is revitalized. We believe the best is yet to come.” In a stock market struggling with recession fears and the European debt crisis, eBay stock this week hit a six-year high.

How has eBay done it when so many others have failed?

Excitement about eBay’s prospects has little to do with its traditional auction business, or even its core e-commerce operations, although its marketplace division posted solid results and had its best quarter since 2006, the company said. Most of its growth came from mobile retailing and its PayPal online payments division, a business it acquired in 2002 for what now looks like a bargain $1.5 billion.

As consumers embrace shopping on their smartphones, “mobile continues to be a game-changer,” Mr. Donahoe said. He noted that 90 million users had downloaded eBay’s mobile app and that 600,000 customers made their first mobile purchase during the most recent quarter. “A woman’s handbag is purchased on eBay mobile every 30 seconds,” he said. “Mobile is revolutionizing how people shop and pay.”

“It’s hard to think of many companies that benefit from mobile,” Mr. Sena said. “Usually it means more competition. But clearly, eBay is one of them. EBay is offering a one-click payment solution. You don’t have to type in a credit card number or PIN. It’s just one click on your mobile phone.”

Mr. Spitz said he was recently stopped at a traffic light and the sun was bothering his eyes. By the time the light turned green, he had used his phone to order and pay for sunglasses. “This is what commerce anytime, anywhere means,” he said. “It’s here.”

Common Sense: EBay’s Turnaround Defies Convention for Internet Companies

David Paul Morris/Bloomberg NewsJohn Donahoe has led a revival of eBay. “Our multiyear effort is paying off,” he said.

Remember Myspace, Friendster, eToys, Webvan, Urban Fetch, Pets.com? Like meteors, they burned with dazzling brilliance before turning shareholder dollars to ash. EBay, Yahoo and AOL, the dominant Internet triumvirate circa 2004, seemed destined for a similar fate. The conventional wisdom has been that once decline sets in at an Internet company, it’s irreversible.

But that was before eBay’s latest earnings surprise, which sent its stock soaring and had analysts scrambling to raise their projections. “Can Internet companies ever turn around? The answer has been no,” Ken Sena, Internet analyst at Evercore, told me this week. “But now, there’s eBay. The answer may turn out to be yes.”

If so, eBay’s success has big implications for struggling companies like Yahoo and AOL, not to mention more recent sensations that have already lost some luster, like Zynga, Groupon and even Facebook, whose shares tumbled this week after its first earnings report as a public company disappointed investors. “EBay has demonstrated that it’s possible to turn the corner even against long odds,” said David Spitz, president and chief operating officer of ChannelAdvisor, an e-commerce consulting company.

EBay shares hit a peak of over $58 in 2004 and made its chief executive, Meg Whitman, a Silicon Valley celebrity. But by November 2007, when she stepped down to enter politics, the telltale signs of decline had set in. Its stock was slumping. Its dominant online auction business had matured, and growth had slowed. Sellers complained about higher fees and poor support. That year, eBay wrote off $1.4 billion on its poorly conceived $2.5 billion acquisition of the calling service Skype, recording its first loss as a public company. Analysts worried that eBay had lost its quirky soul, and was abandoning the flea market auction model that had made it distinctive and dominant in online auctions. By early 2009, its stock was barely over $10, down over 80 percent from its peak.

Ms. Whitman was succeeded by a former Bain & Company managing director, John Donahoe. “One of the unique things about the Internet is a company can be a white-hot success and become a global brand and reach global scale in just a few years — that’s the good news,” he told me this week. “But then somebody can turn around and do it to you. There’s constant disruption. One of the first things I had to do here was face reality. EBay was getting disrupted.”

Little more than four years after taking charge, a buoyant Mr. Donahoe sounded like the chief executive of a surging start-up when he announced eBay’s latest results on July 18. So thoroughly has eBay been transformed that he didn’t even mention its traditional auction business. “Our multiyear effort is paying off,” he said. Profit more than doubled and revenue jumped 23 percent. “EBay is revitalized. We believe the best is yet to come.” In a stock market struggling with recession fears and the European debt crisis, eBay stock this week hit a six-year high.

How has eBay done it when so many others have failed?

Excitement about eBay’s prospects has little to do with its traditional auction business, or even its core e-commerce operations, although its marketplace division posted solid results and had its best quarter since 2006, the company said. Most of its growth came from mobile retailing and its PayPal online payments division, a business it acquired in 2002 for what now looks like a bargain $1.5 billion.

As consumers embrace shopping on their smartphones, “mobile continues to be a game-changer,” Mr. Donahoe said. He noted that 90 million users had downloaded eBay’s mobile app and that 600,000 customers made their first mobile purchase during the most recent quarter. “A woman’s handbag is purchased on eBay mobile every 30 seconds,” he said. “Mobile is revolutionizing how people shop and pay.”

“It’s hard to think of many companies that benefit from mobile,” Mr. Sena said. “Usually it means more competition. But clearly, eBay is one of them. EBay is offering a one-click payment solution. You don’t have to type in a credit card number or PIN. It’s just one click on your mobile phone.”

Mr. Spitz said he was recently stopped at a traffic light and the sun was bothering his eyes. By the time the light turned green, he had used his phone to order and pay for sunglasses. “This is what commerce anytime, anywhere means,” he said. “It’s here.”