fortune--2020-05-18--Amazon was built for the pandemic—and will likely emerge from it stronger than ever

If you were designing a company from scratch that could capitalize on a global crisis, it would probably look a lot like Amazon. A fearsome operating machine that inspires equal measures of dread and admiration throughout the business world, the $280-billion-in-sales tech behemoth can react with the speed of the nimblest startup when challenged. Look no further than the company’s response this year to the coronavirus, which founder and CEO Jeff Bezos described to shareholders in late April as “the hardest time we’ve ever faced.”
Amazon’s leadership team recognized early on that the pandemic could be a historically disruptive event. And Bezos, who’d been spending one day a week at his rocket company, Blue Origin, quickly became more involved in Amazon’s operations, meeting daily with his “S” (for senior) team—a group of top executives, many of whom have been with the company for a decade or more. Almost overnight, Amazon ramped up its already massive online retail business to meet a huge surge in orders in the first quarter, as customers hunkered down at home and turned to the web for essential supplies. To bolster its response, the company embarked on an effort to vet and hire 175,000 additional employees.
The Book on Bezos: This piece is an adapted excerpt from Bezonomics: How Amazon Is Changing Our Lives and What the World’s Best Companies Are Learning From It (Scribner, May 12, 2020). For more information, see Bezonomics.com.
The rapid mobilization paid off. For the three months ended in March, Amazon brought in $75.4 billion in revenue—a 26% gain over 2019. Sales at Amazon Web Services, the company’s cloud-computing business, crossed $10 billion in a quarter for the first time, as customers like streaming entertainment giant Netflix, videoconference sensation Zoom, and workplace-collaboration tool Slack experienced huge spikes in usage. Through early May, Amazon’s stock was up 25% for the year. And the net worth of Bezos, already the world’s wealthiest person, had surged to $144 billion—a leap of $29 billion in a matter of months.
As is often with case with Amazon, the extraordinary results didn’t come without controversy. The company had to respond to the thousands of shadowy sellers who began price-gouging on its site. Then, on May 1, some Amazon workers participated in a nationwide “sickout” to protest what they described as inadequate safety precautions by the company in its facilities. Amazon terminated a handful of employees this spring who were outspoken in their criticism of the company’s safety practices. (In each case the company said the firings were because of violations of company policies, not in retaliation for speaking out.) In announcing its first-quarter results, Amazon said that in the second quarter it would spend some $4 billion or more on COVID-related expenses, including increased salaries for frontline workers, protective gear, and employee testing—enough to cancel out all of its expected operating profits for the period. For Amazon, it’s a small price to pay in order to get the focus back on execution.
Amazon’s reputation for speedy delivery has suffered a little during the crisis as well. Before the pandemic, the norm for most of the company’s Prime customers was one-day delivery and same-day for groceries. Since the pandemic hit, essential items like household staples and medical supplies have taken as many as four days, and nonessential items even longer. Amazon, which is relatively new to the grocery game—it bought Whole Foods in 2017—has been deluged with food orders, and in many cities the company simply hasn’t been able to offer enough delivery slots to fulfill demand.
Despite those stumbles, the consensus on Wall Street is that Amazon will emerge from the coronavirus crisis bigger and stronger than ever—and with consumers even more reliant on its breadth of products and services. “No company can handle the kind of surge in demand that Amazon can,” says Mark Mahaney, the veteran tech industry analyst at RBC Capital Markets. “When the pandemic is really over, the physical retail competition will be weakened—and Amazon comes out of this a winner.”
As always, Bezos is playing the long game. And it’s a strategy that has produced spectacular results. This year Amazon jumped three spots on the Fortune 500 list to No. 2—its highest ranking ever. Since the company first made the list in 2002 at No. 492, its market value has risen more than 22,000%—it was hovering at around $1.2 trillion in early May—and the company’s sales have grown an average of 28% annually. Studying the formula behind that stunning growth trajectory is key to understanding just how much more powerful Amazon may become over time.
Since the day Bezos founded Amazon in 1994, it has essentially been a data-driven company that just happened to do retailing. Over that quarter-century span, Bezos built perhaps the most sophisticated and successful data-powered corporation the world has ever seen. Amazon’s online retail business is powered by algorithms that scan buying patterns second by second and adjust what the company stocks in its vast warehouses, where to stock it, and the fastest way to deliver it.
Well before the pandemic, Amazon was using its digital might to increasingly insinuate itself into our lives. Some 150 million Prime members—a number that grew by 50 million in less than two years—order clothing, staples, and electronics from the e-commerce giant, watch original Prime Video movies and TV shows, and listen to music on Amazon’s streaming media channels. Even consumers who don’t actively use Amazon’s website to shop spend much of their digital lives using services like Netflix that run on Amazon’s ubiquitous AWS servers.
Now the pandemic has accelerated these trends more than anyone could have imagined—and America’s increased reliance on Amazon’s services is likely to stick. Some have even argued that Amazon is becoming a kind of corporate Red Cross, given its essential role in providing supplies for strapped local and state governments. Gene Munster, a partner at the research and investment firm Loup Ventures, told Fortune in a recent interview: “The U.S. would be in a tighter spot if it were not for Amazon. It is a national asset.”
More opportunities for expansion lie ahead. While Amazon dominates the U.S. e-commerce market with a 38% share, it accounts for only about 5% of total retail in the U.S. Pre-COVID-19, some 90% of all retail still occurred in brick-and-mortar stores. But until scientists discover an effective vaccine—and under the best-case scenario, that’s at least months away—many shoppers will be reluctant to return to malls and department stores. That means more will keep reaching for Amazon’s buy button. Even after the virus is contained, it’s easy to imagine that Amazon’s grocery business will continue to thrive. RBC predicts the segment, driven in part by online sales, will reach $88 billion in gross revenues by 2023—nearly double the 2020 level.
175,000 Additional frontline workers hired by Amazon so far in 2020 to meet the surge in online shopping driven by the coronavirus crisis
Amazon also sees an opportunity to use the virus to expand into new areas. Alexa, its magical voice genie, can now answer tens of thousands of COVID-19 questions such as, “Alexa, what do I do if I think I have the virus?” Or, “Alexa, give me tips for cleaning and disinfecting my home.” The company has even patented a technology that will enable Alexa to recognize the sound of a cough. How long before Amazon enters telemedicine? (It’s already offering its Amazon Care telehealth service to its Seattle employees.)
At the same time, Bezos has jumped headlong into the autonomous electric-vehicle race. He has invested billions to build a future in which packages will be delivered by self-driving vans, small bots rolling through neighborhoods, and drones buzzing to their destinations. One thing all those delivery options have in common? They’re impervious to the coronavirus. (Though potentially vulnerable to a computer virus.)
How did Amazon adapt so quickly to the pandemic? One of the company’s great strengths is that it’s run like a federation of independent nations, each with its own leader and citizens. In Seattle, where the company is headquartered, there’s no central corporate suite for the heads of all the business units. The execs are spread throughout the city, running their own operations. Bezos, of course, is the leader of the federation, and his word on important decisions is final. But his lieutenants have more latitude to move quickly, make decisions and investments, and pursue new innovations than is typical in today’s corporations.
From the outside, this structure seems like a recipe for disaster: fiefdoms operating in separate buildings scattered throughout downtown Seattle. But it works. And for one reason only. Bezos has inculcated his business with three bedrock principles that guide all decision-making: customer obsession, extreme innovation, and long-term management. Just about any CEO worth his or her stock options claims to follow some or most of these principles—so much so that they’ve become leadership clichés. Most, however, fail to execute them consistently and over long periods. Under Bezos, Amazon does.
Packing It In: A worker loading outbound packages at an Amazon fulfillment center in Thornton, Colo., in March. Helen H. Richardson—MediaNews Group/The Denver Post via Getty Images
Bezos’s secret is what he calls his flywheel, a conceptual engine that drives his three deeply seated values. At heart, the flywheel—a concept popularized by management guru Jim Collins—is a metaphor for a virtuous cycle. Rather than focusing on the competition, Amazonians spend their every working moment trying to make their customers’ lives better. One way is to lower costs. By doing that, Amazon increases the number of customers who visit Amazon.com. That attracts more independent sellers who want to reach the growing traffic on Amazon’s platform, which leads to more revenue for Amazon. That in turn leads to economies of scale, which help further lower prices for customers. The lower prices pull in still more customers. And the flywheel keeps turning and turning and turning.
It is this flywheel concept, which every Amazon manager knows by heart, that enables the giant corporation to operate as a federation of independent nations. Employees don’t have to wonder what their role is. Their job is to push the flywheel a little harder every day.
When the pandemic is really over, the physical retail competition will be weakened—and Amazon comes out of this a winner. Mark Mahaney, technology industry analyst at RBC Capital Markets
To keep building Amazon’s momentum, Bezos understood that his company had to continually renew each element of the flywheel by innovating. This meant Amazonians had to think imaginatively. They had to ask constantly what they could do to please customers and to attract more third-party sellers. “We are eager to pioneer and invent,” Bezos said last year. “This marries well with customer obsession, because customers are always dissatisfied even if they don’t know it, even when they think they’re happy. They always want a better way, and they don’t know what that will be. I warn people that customer obsession is not just listening to customers, it’s also inventing on their behalf.”
Every new innovation—Prime membership with one-day free shipping, free video and audio streaming, the Kindle, Fire TV, the Echo smart speaker, and Alexa—is designed to attract new customers and keep current ones happy.
As for being long-term oriented, Bezos has always known that building and maintaining a flywheel is a long, hard slog. All of Amazon’s major innovations—from the Kindle to AWS to the Echo—were many years in the making. Even when Amazon failed, as in the case of its late-to-market and mediocre Fire Phone, it kept innovating. Bezos felt deeply that failures were inevitable but even flops might pay off in the long run. Some of the learning from the failed Fire Phone, for instance, ended up in the Echo.
Mad About Amazon: Amazon employees in Hawthorne, Calif., joined a national “sickout” protest on May 1, 2020, calling for unionization and for the company to invest more to protect its workers. Valerie Macon—AFP/Getty Images
The relentlessness of Amazon’s push for efficiency and dominance has drawn accusations that the company has at times crossed anticompetitive lines. In late April, the Wall Street Journal published an investigative report alleging that Amazon had used inside information about sellers on its platform to develop competing products and then undercut the vendors on price. That prompted Congress to request that Bezos testify before the House Judiciary Committee. Amazon has said it is cooperating with the committee, but it is not clear whether Bezos will agree to testify. In response to the Journal article, Amazon said that using pricing data to undercut vendors would violate its policies and that it has launched an internal investigation.
Over the past decade, Bezos has taken the flywheel concept to an even higher level. Amazon is now applying big data, A.I., and machine learning to the operation at an unprecedented rate—to make it spin even faster on its own. This capacity is what helped Amazon respond so swiftly to the pandemic. In his 2016 shareholder letter, Bezos explained the power of such models: “Machine learning drives our algorithms for demand forecasting, product search ranking, deals recommendations, merchandising placements, fraud detection, translations, and much more.”
36% Amazon’s annualized return to shareholders since going public in 1997
Think of this new iteration as the A.I. flywheel. The tens of thousands of engineers, data scientists, and programmers whom Bezos has hired have made the A.I. flywheel a learning machine, a cyber contraption with its own intelligence that takes all the data that Amazon collects on its customers and then analyzes it in minute detail. The machine makes decisions about what items to purchase, how much to charge for them, and where in the world to stock them. As Jeff Wilke, CEO of Amazon’s worldwide consumer division, explains: “In the old days we used data to help make decisions, but humans still made the ultimate decisions. Part of what we’re doing now with machine learning is taking some of the most repetitive intellectual processes and eliminating the requirement for human decision-making. We are able to close the loop so humans no longer have to decide. We place buy orders for millions of items automatically.”
Even scarier for its competitors is how much smarter Amazon’s algorithms may get from all the pandemic-fueled activity. Unlike businesses that are cutting budgets to stay afloat, Amazon is built to optimize in a crisis. It will almost certainly emerge on the other side delivering better service, at lower prices, to its customers. And the flywheel will keep on turning.
A version of this article appears in the June/July 2020 issue of Fortune with the headline “Amazon Was Built for the Pandemic.”


fortune--2020-05-18--Microsoft and FedEx team up to make deliveries more predictable

What to do if your stimulus check is for the wrong amount

Microsoft has teamed with FedEx to develop technology that would help it and other companies ship products more efficiently.
The first service spawned from the partnership, announced Monday against the backdrop of Microsoft’s annual Build developer conference, lets corporations store different kinds of information—like traffic patterns and product inventory—in one system. Businesses can then use machine learning to predict delays in shipping owing to storms, for example, and then change the routes they use.
Although FedEx had previously discussed similar kinds of so-called predictive logistics systems, a company spokesperson said the new service created with Microsoft has improved features, including weather alerts and better inventory management tools. FedEx declined to comment on which partners it had previously worked with to create its older predictive logistics systems or why it switched to Microsoft.
FedEx plans to disclose the cost of the new service, called FedEx Surround, at a later date.
Judson Althoff, executive vice president of Microsoft’s worldwide commercial business, said that both FedEx and Microsoft will share an unspecified amount of money from sales of the new technology. A company spokesperson later clarified that FedEx will pay Microsoft based on how many resources are consumed from Microsoft’s Azure cloud computing service, which powers the upcoming FedEx Surround product.
FedEx president and chief operating officer Raj Subramaniam said the two companies had discussed partnering for the past several months. Coincidentally, the COVID-19 pandemic created a bigger need for the kinds of advanced technologies the two companies were planning on developing to accommodate a general increase in shipping.
“The world has accelerated the trends we expected to see in two to three years happening in two to three months,” Subramaniam said.
FedEx’s work with Microsoft comes after the shipping giant canceled a partnership with Microsoft rival Amazon last year. FedEx had delivered domestic packages for Amazon but stopped after Amazon expanded a rival shipping and logistics business.
FedEx is under pressure to lift its declining profits amid increased competition from Amazon and the impact of the coronavirus pandemic on the economy. Its shares are down 36% over the past 12 months to $107.52.
Also on Monday, FedEx said it will use Microsoft’s Azure cloud computing service and machine-learning technologies internally as part of the partnership.
Story updated on May 18, 11:45 AM PT with comments from Microsoft spokesperson about sales from the product.


fortune--2020-05-18--Confessions of an Instagram addict

Confessions of an Instagram addict

As the world screeched to a halt in the middle of March, there was one place where I could still find normality: Instagram. My family was there—my mom sharing her latest artwork; my brother’s shots of his new baby—as were my friends, both real and aspirational. (DM me anytime, Chrissy Teigen!) But now I could also find a favorite fitness instructor teaching his usual Saturday barre class on Instagram Live, the stylists from my Brooklyn hair salon posting bang-trim tutorials, and the chefs of many of New York’s most beloved restaurants leading IGTV cooking lessons from home kitchens not so different from my own. Almost overnight, the life I used to lead in, well, life, had relocated to Instagram.
And that wasn’t the only change happening in my Instagram existence. As I temporarily retired workwear staples like sharp-shouldered blazers and commute-friendly heels, the ads filling my Instagram feed transformed as well. The screen was now bursting with sponsored posts for “plush upstate sweatpants,” leggings, and loungewear sets. The shift went far beyond clothing, to new-to-me ads for grocery delivery boxes, work-from-home desks, and DIY manicure sets. And, yes, reader: I clicked.
Instagram is having a moment, one that reveals the ways in which the smartphone app is almost perfectly positioned to capture—and capitalize on—The Way We Live Now. Since Instagram posted its first ad in late 2013, it has grown into a marketing juggernaut, albeit one that is sometimes lost in (or perhaps sheltered by) the looming shadow of its powerful parent, Facebook. The world’s preeminent social network, which acquired the photo app for $1 billion in 2012, doesn’t break out Instagram’s finances. But news reports peg the unit’s 2019 revenues in the $20 billion range, or about a quarter of Facebook’s total. And even amid a pandemic, that number is on the upswing. J.P. Morgan projects that Instagram revenues will climb more than 20% this year, despite the expectation that ad money being pumped into the core Facebook app will stay flat. Meanwhile, Instagram is already looking beyond its booming ad business, setting its sights on selling us stuff more directly. It is, says Cowen senior research analyst John Blackledge, “an emerging social commerce powerhouse.”
The app’s evolution into one of the Internet’s most potent tools for separating users from their cash cannot be severed from its relationship with Facebook. The parent, with its user targeting and sheer scale, provides Instagram the engine to turbocharge its own moneymaking machine. But Instagram also brings unique strengths to the endeavor, including its ability to be many things to many people. Are you tempted by the kind of carefully composed, art-directed ads you might see in a luxury glossy? You’ll find an endless supply on your feed. Or maybe you prefer your brands chatty, unscripted, and “authentic.” That’s what Stories—Instagram’s Snapchat-esque feature for disappearing photos and videos—is for. And if the very idea of an ad is a turnoff, how about getting a recommendation or 12 from your favorite celebrity or other “influencer”? They’re all on the app, tagging and sharing their way through their closets, homes, social lives, and vacations.
At its best, Instagram delivers on online advertising’s original promise, to be a helpful service that steers you toward things you actually want. As Jon Jackson, design partner at digital product agency Work & Co., puts it: “An ad only sucks if you don’t care about what it’s selling.”
Screen grabs from the author’s phone illustrate how advertisers are selling—and using Instagram to cope with COVID-19. Courtesy of Instagram; Getty Images
That marketing magic is fragile, though. Even before the coronavirus upended the world’s economic expectations, there were plenty of questions about how long Instagram can keep us caring. Antitrust regulators yearn for Facebook to be broken up, a move that would deprive Instagram of its parent’s valuable algorithms. And Instagram, like all the cool kids of social media before it, faces the existential threat of being displaced by the new new thing. Today’s challengers include Snap and TikTok, but who’s to say what brilliant and deviously addictive new app some coder is dreaming up while quarantining in her apartment right now?
For those of us who have made the app part of our daily routine, though, the real question is, what happens if Instagram gets too good? In its early days, part of what made Instagram radical within the KPI-driven world of Silicon Valley was its focus on creativity for creativity’s sake. It was just a place to share and appreciate gorgeous photos. A lot has changed since then, but people still come to Instagram “to be inspired,” which is one of the reasons it works so well as an ad and shopping platform, says Vishal Shah, Instagram’s VP of product. He’s not wrong. But as the app continues to explore new ways to drive revenue, it risks reaching the point where the only thing it inspires us to do is spend money.
Instagram first dipped its toe into the advertising world in November 2013. At the time, Instagram cofounder Kevin Systrom claimed he personally vetted each ad in an effort to keep the platform’s aesthetic bar high. Fast-forward to 2020: Both Systrom, who left the company in 2018 amid conflicts with Facebook CEO Mark Zuckerberg, and those stringent rules are long gone. Indeed, one of the most appealing aspects of advertising on Instagram is how easy the process is. “It’s literally checking a box,” says Debra Aho Williamson, principal analyst at eMarketer. Advertisers use the same tool that places Facebook ads; they tell the company whom they want to target and where the ad should run—or simply let Facebook make that decision for them. If that company is trying to reach, say, someone like me, Facebook uses my behavior on its apps (both Facebook and Instagram if the accounts are linked, as mine are) and elsewhere on the Internet to see that I’m a woman, age 35 to 45, living in New York City, who likes design, travel, and fashion, and—boom—that ad for the blush-pink Away suitcase lands in my Instagram feed.
Having established near domination in the digital ad market—only Google gets a larger share of the pie—Facebook is now pivoting Instagram toward the next revenue frontier, e-commerce. Since 2017, the platform has allowed for “shoppable posts,” in which a merchant can display pricing information about products shown in a photo, and with a tap take users directly to that item on the retailer’s site. In early 2019, Instagram waded deeper into the world of commerce, launching Checkout, which enables users to buy via PayPal without leaving Instagram. Shoppers enter their payment and shipping information once and then can buy from any of the participating sellers in seconds. Instagram takes a cut of all sales.
Checkout is still a small-time and rudimentary operation—it started with 22 brands and now involves “hundreds,” according to Facebook. The service has its share of skeptics, who call it bare-bones for its lack of shopping tools. But bullish analysts see a big opportunity. Last year, Deutsche Bank estimated Checkout could help drive Instagram’s e-commerce revenue to as much as $10 billion by 2021. And it’s not just its fledgling e-commerce business that makes Instagram essential to its parent. Analysts generally believe Instagram is growing faster, both in users and in ad revenue, than the core Facebook app. eMarketer estimates that Instagram will surpass Facebook this year in terms of U.S. users age 12 to 24—a coveted demographic—and that by 2022, it will be responsible for more than half of the company’s total revenue. Instagram represents a PR coup for Facebook, too, as the photo app has managed to avoid most of the misinformation and data privacy pitfalls that have dogged Facebook. According to a 2019 poll by Pew Research Center, just 29% of Americans correctly identified Instagram and messaging service WhatsApp as being owned by Facebook. Either way, the $1 billion Zuckerberg spent to buy Instagram in 2012 was money well spent. “It’s one of the best acquisitions in history. Period,” says Blackledge, the analyst with Cowen.
I can’t recall the exact moment I crossed over from Instagram photo poster to Instagram shopper. But over the years, the number of purchases I made or first spotted on the app has snowballed. There’s the pointy-toed Rothy’s flats, the Outdoor Voices leggings with matching hoodie, the Ferm Living planter, our new Article throw pillows. In the midst of writing this story, I messaged a friend who’d posted an Instagram Story of herself in some new joggers, asking, “Where are they from?” “Vuori,” she responded, adding: “Instagram buy :)” A pair are now en route to my apartment.
I’m not exactly proud of this behavior—but I know I’m not alone. A recent report from Cowen found nearly 40% of users ages 18 to 35 had bought something from a brand they discovered on Instagram. Overall, about 13% of U.S. Instagrammers said they had made a purchase directly through the app, and more than 60% said they “follow” a brand’s account.
The main reason Instagram is so pleasantly browsable is simple: pretty photos. Much has been made of how its aesthetic has spilled out into the physical world—remaking our public and private places to be “Instagrammable,” spawning #OOTD (the concept of posting a photo of your “outfit of the day”) and helping birth so-called millennial design—the muted pastels and sans serif fonts that rage on and off the app.
Instagram also has transformed digital advertising. The discipline of Systrom’s early gatekeeping has persisted; the ultimate news feed ad looks just like something one of your friends might post—only better. And one of the app’s most popular ad surfaces, Stories, has taught marketers the value of appearing spontaneous and unpolished. It’s a place where brands can string together a series of photos and videos, ideally conveying a ton of information without feeling heavy-handed. “IG Stories is the most powerful tool you can use to introduce your brand to the world,” says Daniel Romano, CEO and cofounder of marketing agency Good Moose.
And you can’t talk about Instagram without talking about influencers, the strange universe of digital demi-celebrities that the app, along with YouTube, created. Marketers spent an estimated $6.5 billion last year on influencers, according to Influencer Marketing Hub. These “creators” are a key part of the “formula” for selling things on the app, says Sheryl Maloney, senior director of digital partnerships at Adidas, an Instagram Checkout pioneer. She cites Ninja, a gamer known for, among other things, breaking streaming records while playing Fortnite with Drake, as an example of someone with the online clout required to get his followers to come to the platform to see—and buy—Adidas’s latest new “drop.”
800 million people now watch live video on Instagram and Facebook daily. By comparison, about 102 million watched this year’s Super Bowl in the U.S.
The immediate question, of course, is which of these digital Jenga pieces will hold firm in a post-COVID-19 world, and which will come loose, leaving the whole structure swaying. The influencer economy is certainly at risk, as stay-at-home orders crimp their photogenic lifestyles, and messages of conspicuous consumption clash with the daily death toll in the news. Facebook has said that the virus has created a “steep slowdown” in its ad business and that it sees “unprecedented uncertainty” ahead. But at the same time, global lockdowns have prompted a massive spike in users and engagement on its apps, and people, stuck at home, are starting to change how they behave when they use them. On an April earnings call, Zuckerberg said that 800 million people are now tuning into live video on Instagram and Facebook daily. By way of comparison, about 102 million people watched this year’s Super Bowl in the U.S.
Instagram knows it must strike a balance between “organic” posts (like when your coworker shares a shot of his latest loaf of sourdough) and paid content. “There’s no one monolithic answer for all of Instagram or even any one person,” says Instagram’s Shah. Instead, the company uses data to try to put more ads in front of users who welcome them—and fewer in front of those who don’t.
As for me, I’m on the app more than ever: six hours and 24 minutes one recent week, according to my iPhone’s Screen Time report. But my posting became anemic—just two photos in my feed so far all year. No doubt the fact that I’ve been stuck in my less-than-photogenic apartment for the past two months has had something to do with that, but I think it also reflects a shift in my relationship with the app. When it’s time to reenter the outside world, I hope I can get closer to the way I used Instagram when I joined, back in 2012: to create, not just to consume.
A version of this article appears in the June/July 2020 issue of Fortune.


fortune--2020-05-18--SoftBank’s problems mount as Vision Fund hemorrhages billions and Jack Ma quits the board

Before the meltdown at WeWork and the outbreak of the coronavirus pandemic, Masayoshi Son said he would like to raise a new Vision Fund every two to three years after his initial $100 billion fund. Now the first Vision Fund looks like it could be the last.
SoftBank Group Corp. said Monday the Vision Fund lost $17.7 billion in the most recent fiscal year, triggering the worst loss ever in the Japanese company’s 39-year history. SoftBank had to write down the valuations of companies like WeWork and Uber Technologies Inc. because of business missteps and the coronavirus fallout. Its return on the fund is negative 6%, compared with 62% just a year ago, he said.
Son conceded he is unlikely to be able to draw outside investors for another Vision Fund, an initiative that he once proclaimed the future of SoftBank as it moved away from the telecom business. The Tokyo-based company will keep making startup investments with its own money, albeit more cautiously than in the past. About 15 of the fund’s startups will likely go bankrupt, he said, while another 15 are likely to thrive.
“Vision Fund’s results are not something to be proud of,” Son said at an unusual press conference in Tokyo, with reporters and analysts calling in remotely because of the pandemic. “If the results are bad, you can’t raise money from investors. Things aren’t good, that’s why we are investing with our own money.”
Son also announced Jack Ma, co-founder of Alibaba Group Holding Ltd., will leave the SoftBank board after 13 years and that his company may not pay a dividend this year to preserve cash.
The 62-year-old billionaire, dressed formally for the occasion in a dark suit, white-striped shirt and blue tie, was far more somber than in the previous earnings conference. In March, he declared the tide was turning for SoftBank after the setbacks at WeWork.
Evoking the Great Depression
On Monday, Son conceded he had not anticipated how the global economy would be affected by the fallout from Covid-19.
“At that time many people could not see that the coronavirus pandemic would spread that far,” he said. His presentation was full of dark slides that highlighted comparisons between now and the Great Depression, when it took years for economic activity to recover. SoftBank wrote WeWork’s valuation down again, this time to $2.9 billion or more than 90% less than its peak.
Son is racing to put his house in order to withstand the challenges. On Monday, SoftBank also detailed plans to shore up its balance sheet and its stock price, part of a plan to sell 4.5 trillion yen in assets.
The company raised $11.5 billion from contracts to sell shares in Alibaba, its most valuable holding. SoftBank is likely to sell stock in its Japanese telecom unit SoftBank Corp. and T-Mobile US Inc.
The company also said on Monday it plans to spend up to 500 billion yen to buy back shares through next March, on top of an existing repurchase plan of the same size. That has helped SoftBank shares stabilize, rising more than 70% from their low in March.
SoftBank did not give a dividend forecast for the first in its history, saying it may not pay one this year. “Just in case we need more financing,” Son says.
Separately, SoftBank said Ma will step down as a director as part of several planned board changes. Three new directors have been nominated, including SoftBank Chief Financial Officer Yoshimitsu Goto. Lip-Bu Tan and Yuko Kawamoto will join, bringing the total of external board members to four. Kawamoto will be the first female director.
“Not clear who is going to hold Son responsible”
Son’s increasingly risky bets over the past few years coincided with departures from SoftBank’s board of some of it smost outspoken members. Shigenobu Nagamori, the founder of motor maker Nidec Corp., stepped down in 2017, while Fast Retailing Co. Chief Executive Officer Tadashi Yanai left last December.
“With no famous outside directors left on SoftBank’s board, it’s not clear who is going to hold Son responsible anymore,” said Masahiko Ishino, an analyst at Tokai Tokyo Research Center.
Son did not back away from continuing to make startup investments, although it will be with his own money for the foreseeable future. He said he believes that the economic shock of the coronavirus could end up helping technology companies in fields from ride-hailing to artificial intelligence.
“I believe this shock will only accelerate the paradigm shift,” he said.
Son famously lost about $70 billion during the dot-com bust, as startups cratered and his stock price crashed. He said the current downturn is nothing compared to that, when he was holding on by two fingers. Now, he has a more stable balance sheet and billions in assets he could sell if need be.
“Compared to the past crisis, this time I am just looking down on the bottom of the valley from above,” he said.
Indeed, he encouraged investors to think through the implications of the Vision Fund’s end. Even if the fund is worth zero, SoftBank has stakes in Alibaba, SoftBank Corp., T-Mobile US and others that are worth about double its market value.
“Even in the worst case scenario, the risks Son has taken will not sink his company,” said Jusuke Ikegami, a professor at Waseda Business School in Tokyo.
He offered no assurances that his startups will recover. In fact, he reckons Vision Fund company valuations are more likely to go down than up.
Still, Son didn’t concede that the Vision Fund is a bust. He said SoftBank anticipates it will be able to pay a 7% return to limited partners who hold about $40 billion in preferred stock.
Pressed for some view of the future, Son said that he still thinks he could see a 20% internal rate of return on Vision Fund investments. Now is the worst possible time but in five or ten years, things may look different. He could even approach outside investors about future funds.
“The situation is exceedingly difficult,” Son said. “Our unicorns have fallen into this sudden coronavirus ravine. But some of them will use this crisis to grow wings.”


fortune--2020-05-18--Uber made the Fortune 500, but it might not stick

This is the web version of Data Sheet, Fortune’s daily newsletter on the top tech news. To get it delivered daily to your in-box, sign up here.
The sixty-sixth edition of the Fortune 500 debuts today. The aggregate revenues of the list are nearly always up from the year before, and 2019 is no exception. The 500 largest companies in the U.S. by revenue grew 4% last year, to $14.2 trillion.
In fact, according to Fortune senior editor Scott DeCarlo, the master of the list, there have been only seven years since 1955 that total revenues have declined: 1958, 1982, 1986, 1991, 2002, 2009, and 2015. (The last one, in the middle of the long bull market, was due to a decline in oil prices, which hit energy companies.) The biggest one-year decline ever was 8.67% in 2009, during the financial crisis. It seems hard to believe next year’s percentage decline won’t exceed that drop.
The five most valuable companies on the list (but not the top-ranked companies because of the revenue basis) are all technology companies. No surprise there.
Seventeen companies make their debut on the list. One is Uber, the ride-hailing company now severely stricken by a lack of commuting or partying during the economic and bar-hopping lockdown. As I note in my feature about the company in turmoil, it’s altogether possible that while Uber made the list in its first year of eligibility—mainly public companies* are on the list, and Uber went public last year—it could fall off in its second.
At the other end of experience spectrum is Honeywell, which has been on every Fortune 500 list, one of 52 such companies. Robert Hackett tells the fascinating story of Honeywell’s efforts to refashion itself as a software company. That’s a particularly pressing matter given that aerospace is Honeywell’s biggest segment.
One statistic stood out for me in Hackett’s article: Honeywell has $9 billion in cash, a sign of its wherewithal in the downturn. That’s the same amount of cash as Uber has. The former generated its cash the old-fashioned way—by earning it. Honeywell made $6 billion last year. Uber, on the other hand, raised the cash from investors. It lost more than $8 billion last year.
(*Private companies that file audited financial reports to the SEC or state insurance regulators, like State Farm, can also be on the list.)
***
A thought: I keep reading or hearing about CEOs who say their companies will emerge from the crisis “better than ever.” With a few exceptions—Zoom and Amazon come to mind—this is almost complete hokum. It is understandably wishful thinking and/or morale-boosting cheerleading by bosses unwilling to admit the truth to themselves, their investors, or their employees.
Adam Lashinsky
@adamlashinsky
adam.lashinsky@fortune.com
This edition of Data Sheet was curated by Aaron Pressman.
NEWSWORTHY
And I oop. Looking to a generation that doesn't even need words to communicate online, Facebook agreed to buy Giphy, the repository of animated GIFs, for $400 million. The service is already integrated into Facebook's apps, but also the apps of rivals like Twitter and TikTok. And that means the deal is likely to get a close review from antitrust regulators.
You get out of here. I'd say I told you so, but so would everyone else. SoftBank Group reported an $18 billion loss in its massive Vision Fund for the fiscal year, mostly from losses on its stakes in struggling startups WeWork and Uber. Billionaire founder Masayoshi Son said some of the companies he'd backed had fallen “into the valley of the coronavirus," but added, “I believe some of them will fly over the valley.”
You must be new here. In the Zoom wars—sorry, I mean the video-conferencing software wars—Google says its Meet app has passed 50 million downloads on Android. That's 10 times more than at the beginning of March, before Google decided to make it freely available.
My poor brain cannot cope. Social news site Reddit will let users earn digital currency by posting and participating in discussions on two of the service's forums, or subreddits. The two new cryptocurrencies, Moon and Brick, will be tracked on the Ethereum blockchain and will only be available to use for virtual Reddit merch.
Old and busted...new hotness. A group of criminal hackers based in Nigeria has apparently graduated from email scams ("I must solicit your strictest confidence in this transaction...") to COVID-19 scams. The hackers filed bogus unemployment claims around the country worth hundreds of millions of dollars using stolen identities. (Also, all mention of email scams must link to this hilarious video of comedian James Veitch engaging the scammers in some witty repartee.)
FOOD FOR THOUGHT
The boom in ecommerce extends beyond giants Amazon and Walmart. Wall Street Journal columnist Christopher Mims has the fascinating tale of home bakers selling their bread, muffins, and scones via sites like Etsy. He spoke with Abby Glassenberg, president of the Craft Industry Alliance, which represents online sellers.
Etsy has proved to have strengths that would have been difficult to anticipate, says Ms. Glassenberg. For one, its suppliers generally already work at home, so lockdown didn’t affect their ability to be productive, as long as they were able to get raw materials. For another, while both eBay and Amazon offer handmade goods, sellers who have sold at all three of these outlets say Etsy is their preferred marketplace. Etsy customers are willing to accept higher prices than eBay customers, and Amazon prioritizes sellers who can ship goods quickly, which isn’t always possible for solopreneurs producing on demand.
Besides, shoppers find comfort in buying food from producers who seem like real people they can relate to and trust—which Etsy does better than Amazon, for one.
IN CASE YOU MISSED IT
Why Intel is betting its chips on microprocessor mastermind Jim Keller By Aaron Pressman
Will 5G remake the post-coronavirus world? It already has, say the CEOs of Cisco and Qualcomm By Clifton Leaf
Uber’s proposed Grubhub acquisition highlights a growing food fight over deliveries By Danielle Abril
The class of 2020 is getting a crash course in job market uncertainty By McKenna Moore
Plant-based food sales see greatest gains yet as meat shortage fears grow By Rachel King
Quibi ‘losing the attention game,’ analyst says By Andrew Nusca
Is the stock market experiencing the dreaded ‘dead cat bounce’? By Ben Carlson
(Some of these stories require a subscription to access. There is a 50% discount for our loyal readers if you use this link to sign up. Thank you for supporting our journalism.)
BEFORE YOU GO
In a delightful crossover between big-budget Hollywood shows and the topics discussed herein, last night's episode of Billions on Showtime revolved around a bitcoin scheme hatched by some high school kids. Nice work if you can get it.
Aaron Pressman
@ampressman
aaron.pressman@fortune.com


fortune--2020-05-18--Women run 37 Fortune 500 companies, a record high

Good morning, Broadsheet readers! Julia Cheek’s Everlywell wins FDA approval for an at-home coronavirus test, Mark Zuckerberg has taken a more hands-on approach at Facebook—affecting Sheryl Sandberg’s role, and more women than ever run Fortune 500 companies. Have a productive Monday.
– All-time record. Today, Fortune releases our annual Fortune 500, tallying the largest companies in American business. And this year, there’s a new milestone accompanying the list: more women than ever before run Fortune 500 companies.
Thirty-seven of the 500 companies on the ranking are headed by women. While female CEOs still represent only 7.4% of Fortune 500 leaders, that’s still an all-time record; last year’s 33 was the prior high. Two decades ago, women ran only two Fortune 500 businesses.
While the number of women leading these companies is ever-vacillating—as executives are hired, fired, or retire, and as companies grow or shrink to join or fall off the Fortune 500 list—the statistic still provides a useful snapshot of the state of women’s leadership in corporate America. The Fortune 500 itself is seen as a microcosm of U.S. business at large, giving the 7.4% number weight beyond these few hundred companies.
Now, onto the women. Some new names among the 37 this year include Carol Tomé, a longtime Home Depot executive set to take over UPS on June 1. Heyward Donigan began as CEO of Rite Aid in August of last year. Jennifer Johnson took over her family business, the $5.8 billion investment manager Franklin Resources, from her brother in February. And after Gap Inc. scuttled a plan to spin off Old Navy into what would have been a standalone Fortune 500 company, Sonia Syngal, who had been tapped to run that business, was instead promoted to run the entire corporation.
Which brings us to another point: Syngal is one of only three women of color included among the list of 37. (The other two are Advanced Micro Devices CEO Lisa Su and Yum China CEO Joey Wat.) No black women or Latinas run Fortune 500 businesses (that’s a drop-off from last year, when Bed, Bath & Beyond interim CEO Mary Winston was the only black woman at the helm of a company on the list).
You can read on here for more insights into the women running Fortune 500 companies, the progress that has been made, and the many ways in which diversity at the top of American business still has far to go. We’ll be bringing you more from the Fortune 500 issue of the magazine throughout the week.
Emma Hinchliffe
emma.hinchliffe@fortune.com
@_emmahinchliffe
ALSO IN THE HEADLINES
- CEO/COO. The New York Times reports that Mark Zuckerberg is "effectively sidelining" Sheryl Sandberg at Facebook as he takes a more hands-on approach to solving the tech giant's problems, wading into her traditional responsibilities, like schmoozing lawmakers. A spokesperson for Sandberg declined to comment for the piece. New York Times
- Testing the waters. As the coronavirus pandemic escalated in March, Everlywell was one of a few startups to race to offer coronavirus testing, until hitting hurdles with the FDA. Now the lab-testing company led by Julia Cheek has received FDA approval to provide consumers with at-home swab testing sent to a lab for results. New York Times
- VP report. The Atlantic reports that Sen. Elizabeth Warren is making her case for the spot on Joe Biden's ticket—and that the coronavirus crisis plays to her strengths as a leader; recent months have also changed the texture of her and Biden's relationship, the Boston Globe reports. Warren also spoke to The Atlantic about the death of her brother from the coronavirus. For Zora, Roxane Gay writes about Stacey Abrams' defense of Joe Biden as he faces a sexual assault allegation (which he denies).
- Penney for your thoughts. J.C. Penney is the latest retailer to file for bankruptcy; as Fortune's Phil Wahba explains, the filing and accompanying closure of a significant number of stores is "a stunning fall from grace for a retailer that at one point was surpassed only by Sears in size and importance in American life." The chain had struggled for years, but CEO Jill Soltau suggested the coronavirus pandemic pushed it over the edge. Fortune
MOVERS AND SHAKERS: Rona Ambrose, former Canadian health minister, joins the board of Juul; she is the first woman to join the e-cigarette company's board.
IN CASE YOU MISSED IT
- Prom season. President Barack Obama may have given the high-school class of 2020 their commencement address, but Michelle Obama is swooping in with virtual prom. Her organization When We All Vote will host the prom for quarantined high-schoolers in partnership with MTV. CNN
- Bad news. Two women-run media companies are facing troubles right now. Vice, led by CEO Nancy Dubuc, laid off 155 employees last week. And Business Insider reports that layoffs and executive pay cuts at theSkimm earlier this month haven't been enough to ensure the future of the newsletter and media venture founded by Danielle Weisberg and Carly Zakin.
- Meaning of Mrs. A New York Times series examines the meaning of "Mrs." Explore the package to read stories ranging from women's reflections on the honorific itself, to the work of designer Ray Eames—introduced often only as "Mrs. Eames" in the mid-twentieth century, to the meaning of the word "wife" to queer women.
ON MY RADAR
Faces of America Allure
Lynn Shelton, director of intimate comic dramas, dies at 54 New York Times
Corona-canceled weddings are changing women’s pregnancy plans Glamour
Motherhood through the looking 'gram Elle
PARTING WORDS
"You will be prepared to face just about anything. In this sense, you have been given a rare and valuable opportunity, while staring down the biggest challenge most of us have ever faced in our lifetimes."
-General Motors CEO Mary Barra in an address to the class of 2020


fortune--2020-05-18--The case of the missing toilet paper: How the coronavirus exposed U.S. supply chain flaws

Before executives at consumer-goods giant Kimberly-Clark rushed to shut their offices on Friday the 13th of March, they convened for one last emergency meeting. Commuting home that final time, Arist Mastorides, president of family care for North America, stopped at his local Walmart, on the edge of Lake Winnebago in Neenah, Wis., to see the emergency firsthand. Mastorides oversees toilet paper brands like Cottonelle and Scott, but that evening he could find none of his own products. “A long gondola shelf that’s completely empty of bathroom and facial tissue, I never in my life thought I would ever see that,” he says. “That’s a very unsettling thing.”
Indeed, that week will be remembered for the Great Toilet Paper Panic of 2020. The previous day, March 12, TP sales had ballooned 734% compared with the same day the previous year, becoming the top-selling product at grocery stores by dollars spent, according to NCSolutions, which tracks consumer packaged goods (CPG). As shoppers prepared to hunker down at home indefinitely to avoid the coronavirus, they wiped Amazon, then supermarkets across America, clean of the bathroom basic. People might need as much as 40% more toilet paper at home for “occasions” (as the industry calls them) that would otherwise happen at workplaces, restaurants, or hotels. But they bought far more: Sales were up nearly 71% year over year in the nine weeks through May 2, according to Nielsen. They would have risen even higher—except that people can’t find enough toilet paper to buy.
At first, experts waved off concerns about shortages. A Wall Street Journal editorial on March 22 declared, “There is one fear we can alleviate: the idea that America is running out of toilet paper.” But much of America did, in fact, run out. By March 23, toilet paper was out of stock at 70% of U.S. grocery stores (including online sellers). “When everybody forward-buys, then you do create a shortage. Perception becomes reality,” says Pete Guarraia, who heads consultancy Bain’s global supply-chain practice.
Some two months into the pandemic, the white stuff remains scarce. All types of Charmin are indefinitely “unavailable” on Amazon.com; Costco has suspended TP shipping “due to limited supply.” “It’s not like there’s troves of it sitting in warehouses that we didn’t get to stores,” says Dan Toporek, a spokesperson for Walmart. “There’s just truly such high demand it’s hard to have in stock anywhere.”
Charmin toilet paper at a Procter & Gamble plant in Green Bay. Even P&G desk workers are taking on factory shifts to keep up with demand. Courtesy of Procter &Gamble
Major companies are now absorbing the reality that something as mundane as toilet paper represents a uniquely complex supply-chain challenge. Paradoxically, the great strides the CPG industry has made in efficiency in recent years—especially the near-global adoption of “just in time” manufacturing and distribution—have now clogged the pipes that get TP to customers. And toilet paper is merely one of the essential items, from disinfectant wipes to baking yeast, teaching business a hard lesson about weaknesses of modern manufacturing and logistics. “The fact that we’ve been working so hard to try to make sure our systems run as efficiently as they possibly can has necessarily meant that we didn’t have weeks and weeks of supplies sitting around,” says Leslie Sarasin, CEO of FMI, a trade group that represents the grocery industry.
Big purchases from those groceries have snowballed—by orders of magnitude—at manufacturers like Procter & Gamble, maker of Charmin, and Kimberly-Clark. That means that even as production has increased, back orders are likely to last well into the summer. Persistently bare shelves, meanwhile, perpetuate the perception that there is a true shortage; thus, the panic buying continues. “We are prepared for thousands of different events, from cybersecurity attacks to earthquakes to fire,” says Julio Nemeth, P&G’s chief product supply officer, whose earnest voice is accented by his native Argentina. “But we were not prepared for all of those happening at the same time, which is what the pandemic brought to us.”
As it happens, toilet paper really does grow on trees—eucalyptus trees, mostly, in Brazil. Whereas in the U.S. and Canada trees take decades before they can be cut down, the sweetly mint-scented Brazilian trees reach 100 feet into the sky in just six or seven years, growing faster than corn. “That’s what makes them so low cost,” says Mark Wilde, a packaging and forest products analyst at BMO Capital Markets who is widely known as Dr. Paper.
For a product like toilet paper with single-ply margins, every penny saved is key. And as sales of bog rolls have surged, demand for the virgin pulp used in Charmin and Cottonelle has also ticked up, sending prices of the commodity $30 higher in early May, to around $500 a ton, according to HSBC. But try charging more for toilet paper, and you’ll incur consumer outrage. That’s why the paper industry is more cost-obsessed than perhaps any other. “It’s as absolutely ideally optimized, as perfectly as it can be, between the supply and the demand,” says Yannis Skoufalos, who retired last year as P&G’s global product supply officer.
At least that was the case until the coronavirus upset the balance. Historically, it has been easy to produce just the right amount of TP because demand is so boringly consistent. And because of its bulk, no one wants extra rolls taking up valuable space. Those factors have made toilet paper the quintessential candidate for just-in-time manufacturing, the methodology that has come to dominate the CPG industry in the past decade.
But it also meant that when pandemic shoppers descended on paper aisles, there was no more than two or three weeks’ worth to sell, anywhere in the supply chain. As early as February, preparing for potentially greater demand and feared plant closures, P&G boosted production of brands like Crest toothpaste and Olay moisturizer. But “we never had more on hand in the paper category,” says Nemeth. Cost considerations played a role: Whereas you could open up another assembly line to fill bottles of Tide detergent for under $10 million, an additional paper machine would require an investment of roughly $300 million, explains Skoufalos.
Toilet paper machines ran at 99.8% of capacity in March, according to Fastmarkets RISI, up from their normal 92%. Even so, overall U.S. production increased only 8%, to some 700,000 tons for the month, according to the American Forest & Paper Association. “This pandemic has revealed the limits of lean supply-chain management,” says Bain’s Guarraia.
No retailer has taken the just-in-time model to more of an extreme than Amazon. Making a profit on one-day and even one-hour delivery depends on accurately forecasting demand. “If Amazon knows they can order on Tuesday and get it literally in their warehouses by Friday, it’s totally fine,” says Andrea Leigh, a former Amazon executive, now VP of strategy and insights at Ideoclick, an e-commerce optimization company.
The toilet paper production conundrum, however, has become an unprecedented challenge for Amazon, leaving it months behind on orders. Amazon even temporarily stopped allowing some goods into its warehouses altogether, “to prioritize stocking and delivering essential items like household staples,” CEO Jeff Bezos announced on March 21. But on basics like toilet paper, Amazon earns little profit, if any, even at pandemic-driven higher volumes, says Leigh. (Amazon’s additional revenue on many low-price items “is basically coming at cost,” CFO Brian Olsavsky said on a recent earnings call. Amazon declined to comment for this story.) And unprofitable as it is to sell, not selling toilet paper comes with a customer-service cost. “The fact that Amazon cannot deliver Charmin for over eight weeks in a row shows how pathetic it is,” says Burt Flickinger, managing director of the consultancy Strategic Resource Group, and a former P&G executive.
The irony is that with people stuck at home, Amazon is flushing away potential sales of other items while it plumbs its TP pipeline. Says Mark Mahaney, Internet analyst at RBC Capital Markets, “I’m sure they must be kicking themselves in the butt.”
Wally Nowinski, a San Francisco–based e-commerce executive, subscribes to toilet paper via Amazon, receiving biweekly deliveries. But beginning in late February, while his subscriptions to shampoo and soap kept arriving on time, Amazon missed four straight TP shipments. Then, at the end of April, three 24-roll packs of Quilted Northern showed up in the span of a week. Not that it did him much good by then. “We went out to the store and bought toilet paper. I don’t suddenly need, like, two months’ worth,” he says.
Nowinski’s experience provides a glimpse into how the shortage is constipating companies behind the scenes. Because demand still exceeds production capacity, TP is “on allocation,” meaning retailers are getting only a fraction of the amounts they’ve ordered—a measure generally applied only to the season’s hottest toys or games. Since Amazon prioritizes subscriptions, says Leigh, delayed shipments suggest it hasn’t gotten enough TP to fulfill even orders placed long before the pandemic. Facing a similar problem, Costco has decided not to sell TP online for the time being. “We have chosen to keep our warehouses in stock as best as we can,” Bob Nelson, Costco’s senior vice president of finance, tells Fortune.
What no business wants is to be stuck with mounds of rolls when buying finally slows. (Consumers in pricey cities can relate. Says Nowinski, “We pay $5 a square foot a month in rent—I don’t want to be storing all this toilet paper.”) “You can build supply chains that are 100% resilient to all shocks,” Guarraia says. “But the analogy I use is you can build a car where if you have an accident you would never be hurt, but you would never want to drive that car.”
Still, manufacturers are adapting to the likelihood of prolonged higher demand as people work more from home. After leaving the office that March Friday, Kimberly-Clark’s Mastorides spent the weekend deciding which kinds of TP to stop producing—cutting “SKUs” by at least half. The company has focused on six-packs of Cottonelle “mega rolls” versus 12-packs; that keeps plants from having to stop the machines as often to switch out materials, minimizing downtime. Some variants likely won’t return post-pandemic. “I think we’ll have a very different assortment as we exit this,” Mastorides says.
Over at P&G, after two months of record-breaking production, Nemeth’s team is implementing lessons learned from the crisis. “We are turning those into essentially a reengineering of our supply chain,” Nemeth says. Having adapted its operations for ultra-predictable demand, P&G is now redesigning them for “a significantly more volatile environment.” That includes fast-tracking onboarding for new suppliers, adding distribution sites, and using data to generate earlier demand-shock warnings. The necessities of social distancing have also helped P&G realize it can staff plants more efficiently, by spreading workers across more shifts.
Even desk workers have lately pitched in on factory floors. After all, shortages have chafed Charmin executives as much as they have the rest of us. “I buy my toilet paper where anybody buys it,” says Nemeth. Unless, of course, it’s sold out.
Rolling with the TP punches
Fortune 500 companies grappling with toilet paper shortages are plunging ahead to keep up with surging demand.
Kimberly-Clark (No. 175)
Look for more “mega” than “double” rolls of top brand Cottonelle: Manufacturer Kimberly-Clark has cut the number of TP variations it makes to avoid pausing its assembly lines. It’s prioritizing six-roll packs over 12-packs, which helps spread the supply among more customers.
Procter & Gamble (No. 50)
Even office workers have lately taken shifts on the factory floors to push production to record highs. The company is also relying more heavily on analytics to foresee demand fluctuations and give it “more flex up and down,” says P&G’s Julio Nemeth.
Costco (No. 14)
The wholesale-quantity grocery seller has limited purchases to a single jumbo pack of toilet paper per member (helping prevent tussles between shoppers). Costco has also stopped selling TP online until at least June.
Walmart (No. 1)
Since March, Walmart has been hiring 5,000 new workers a day—with the
aim of adding 200,000 in total—to help keep shelves stocked and orders filled as shopper demand strains its supply chain. It’s also having manufacturers ship toilet paper directly to its stores, bypassing warehouses and slowdowns from trucking between them.
A version of this article appears in the June/July 2020 issue of Fortune with the headline “The case of the missing toilet paper.”


fortune--2020-05-18--Misery at the mall: Which retail chains are hurting the most?

Generations of American teenagers may consider the mall essential, but authorities trying to slow a pandemic did not. Virtually all U.S. shopping centers closed as the coronavirus started to spread—exacerbating the already perilous financial position many mall-based chains were in before the pandemic. So far, Neiman Marcus and J.Crew have sought bankruptcy protection, and analysts predict they won’t be the only ones. Some national retailers and restaurant chains refused to pay rent in April and are playing hardball with mall operators for May, even as stores in some markets begin to reopen. And each chain is having to navigate how extensively to staff stores, without really knowing when customers will come back in force.
To conserve cash, many chains have furloughed store employees, cut dividends, stopped buybacks, canceled orders, and delayed investing in updating stores—all things that in the long term will weaken many of them as businesses. But the industry is in survival mode right now. A recent S&P analysis found that the risk of default at many national retailers had risen quickly. To show how this crisis is playing out in America’s shopping centers, Fortune took a close look at Oakbrook Center outside Chicago, a sprawling mall owned by Brookfield Properties. Here’s who is poised to best ride out the crisis—and which of your favorite brands are hanging on by a thread.
Inside the Oakbrook Center
Source: Bloomberg
Bloomberg default risk analyzes the credit health of each company by estimating the default probability over the next year as well as other factors.
A version of this article appears in the June/July 2020 issue of Fortune with the headline “Misery at the mall.”


fortune--2020-05-18--This Fortune 500 company’s ‘reopening playbook’ is available for free—and has been downloaded 25,000

This Fortune 500 company’s ‘reopening playbook’ is available for free—and has been downloaded 25,000 times

Fortune 500 companies have myriad strategies to protect their most sensitive trade secrets. They guard them. They insure them. They enlist experts to encrypt them.
What they don’t do, generally speaking, is give them away.
But these are not ordinary times. Earlier this spring, Lear, a global supplier of auto parts based in Detroit (No. 166 on the Fortune 500), spent thousands of employee hours compiling a comprehensive manual on how to resume operations in the wake of COVID-19. Then the company gave it away for free. Lear’s Safe Work Playbook, available on its website, has now been downloaded more than 25,000 times since it was posted on April 6.
Lear employees in PPE during a shift at the companies plant in Rabat, Morocco. Courtesy of Lear Corporation
“It was back in March, and as I saw our plants in other areas of the world suspending operations, we were preparing to restart our plants in China,” explains Ray Scott, Lear’s president and CEO. “There were a lot of recommendations out there. But I felt there was not anything off-the-shelf we could take and provide to our plant managers and employees.” That kicked off a monthlong process of compiling the 84-page playbook (now in its second edition), drawing on expertise from throughout the company.
The manual granularly breaks down such things as training employees to “lead with their elbows” through turnstiles, why gloves create a false sense of security, how often to clean the vending machine, why some employees should be encouraged to eat lunch in their cars, and what to do if a worker tests positive for COVID-19. “Every detail of an employee’s day at the plant had to be considered,” says Scott.
Lear’s playbook has been used to successfully reopen the majority of the company’s 40-plus facilities in China, as well as several in Europe, Africa, and elsewhere. Now it’s the blueprint as the company begins to gradually reopen sites in the U.S. as government guidelines permit.
Employees wearing PPE while working on the production line, at Lear Corporation’s plant in Liuzhou, China. Courtesy of Lear Corporation
Furniture maker Steelcase is using the playbook, and a spokesperson says it “helped us scale our safety development work much faster.” In Detroit, Glenn Stevens, executive director of industry trade group MICHauto, says he hears from manufacturers “all day long” about how to safely reopen, and he points them all to the playbook. Stevens notes that given how interconnected supply chains are, if smaller parts-and-materials suppliers use the manual, it will quicken the pace at which industries can restart production.
Will this spirit of collaboration extend beyond the pandemic? “The auto industry in Michigan is a very close-knit industry while also being intensely competitive,” says Stevens. But at least for now, “Lear is saying, ‘We’re all in this together.’”
A version of this article appears in the June/July 2020 issue of Fortune with the headline “A pandemic playbook.”


fortune--2020-05-18--The number of female CEOs in the Fortune 500 hits an all-time record

The number of women running America’s largest corporations has hit a new high: 37 of the companies on this year’s Fortune 500 are led by female CEOs.
The Fortune 500, which ranks America’s largest companies, has long been seen as a microcosm of U.S. business at large. For that reason, the number of female chief executives on the list is closely watched statistic among those who track gender diversity in board rooms and C-suites across the country.
This year’s tally soundly beats last year’s 33, which was itself a new record. Yet the big picture is less encouraging: even with a record 37 female CEOs, women run just 7.4% of the 500 businesses on the ranking. (For perspective: Twenty years ago, women ran two.) Only in the past four years has the growth of women in these roles accelerated past 30—a general upwards trend, though there have been dips along the way.
The number of women running Fortune 500 companies is influenced by several factors, including executive leadership changes and companies either growing to make the list for the first time, or shrinking to fall off of it. So while the ever-vacillating number is not a scientific assessment of the state of women in American business, it does provide a useful snapshot.
Some of this year’s new additions arrived on the list after taking over Fortune 500 companies from male predecessors in the past year. Carol Tomé, a longtime Home Depot executive, will begin her run as CEO of UPS on June 1. Heyward Donigan, a veteran health care executive, became CEO of Rite Aid in August 2019—in time to keep the drug store running through the pressures of the coronavirus pandemic. After Gap Inc. scuttled a plan to spin off Old Navy into what would have been a standalone Fortune 500 company, Sonia Syngal, who had been tapped to run that business, was instead promoted to run the entire corporation. Kristin C. Peck became chief executive of the $6.3 billion animal health company Zoetis in January. And Jennifer Johnson took over her family business, the $5.8 billion investment manager Franklin Resources, from her brother in February.
Some women among the group of 37 are leaders of companies that broke into the Fortune 500 for the first time this year (the revenue threshold for a company to make the list was $5.7 billion). That group includes Barbara R. Smith, the CEO of $5.8 billion materials business Commercial Metals, and Nazzic S. Keene, CEO of the $6.4 billion government information technology company Science Applications International.
Within the ranks of the 37 women who make up this list, a longstanding problem persists: there is starkly little racial diversity. Only three of the 37 are women of color: Gap Inc.’s Syngal, Advanced Micro Devices CEO Lisa Su, and Yum China CEO Joey Wat.
Not one of the 500 companies on the list has a black woman at the helm. That’s a drop-off from last year, when Mary Winston, interim CEO of Bed, Bath, and Beyond, was the only black woman among these chief executives; she has since been replaced with a permanent CEO. No Latinas are in these roles either. (Past black and Latina Fortune 500 female chiefs include former Xerox CEO Ursula Burns and former PG&E CEO Geisha Williams.)
There are some familiar names missing from the list of female Fortune 500 chiefs this year. Eight-year IBM CEO Ginni Rometty stepped down in April; she is now serving as chairman through the end of 2020. As of June 15, Marillyn Hewson will no longer be CEO of Lockheed Martin; when she assumed the job in 2013, she became the first woman to run America’s biggest defense contractor. KeyCorp CEO Beth Mooney left her role of nearly a decade in May, while Melisa Miller lasted just five months as chief executive of $6.6 billion Alliance Data Systems.
Other changes of note in the past year include Safra Catz’s leadership at Oracle; she is now the sole CEO of the company after the death of her co-CEO Mark Hurd. At AutoNation, the country’s largest dealership chain, CEO Cheryl Miller is on a health-related leave of absence but is still included in this tally. And Judy Marks is the CEO of $13 billion Otis Elevator, but a technicality prevents her from being included in this group. Otis spun off from Raytheon Technologies in April, a development not considered for this year’s Fortune 500, which is based on the 2019 fiscal year; if Marks is still in charge of the new standalone company when it is expected to make the Fortune 500 this time next year, she will be added to the list.
While the overall picture—that women run 7.4% of the businesses on the Fortune 500—is significant, there are some more micro trends worth noting. Many of these women leaders are concentrated at the bottom of the Fortune 500, where the companies are smaller. Only seven women run Fortune 100 companies; Mary Barra, CEO of the $137 billion auto giant General Motors, runs the largest. Several female CEOs are concentrated in retail, from Corie Barry’s Best Buy to Barbara Rentler’s Ross Stores to Laura Alber’s Williams-Sonoma, while female leadership among the Fortune 500’s tech companies remains rare.


fortune--2020-05-18--Equilibria’s cofounders on demystifying CBD and anxiety relief during a pandemic

This is an installment in a special series, Startup Year One, interviewing founders about the major lessons they’ve learned in the immediate aftermath of their businesses’ first year of operation.
Even in the spring of 2018 when the idea for Equilibria was born, the CBD space already had thousands of players. Of course, there were some high-quality brands, but in this unregulated industry, most were not seed-to-sale, medical-grade products optimized for therapeutic results. It is precisely this opaque and hype-driven landscape of CBD that inspired cofounders Coco Meers and Marcy Capron Vermillion to launch Equilibria.
As two serial tech entrepreneurs, the women recognized the hole in the market wasn’t around a different brand positioning or channel. First, it was about demystifying a new product category inextricably linked to cannabis, which is legal in only a few states. Second, studies are still inconclusive about the widespread benefits of CBD, which produces different results for different people, which is the underlying motive for Equilibria’s personalized dosage service. Every customer at Equilibria is paired with a personal dosage specialist, a trained cannabis educator who guides customers through how to tailor CBD to specific needs.
“Our mission at Equilibria has been and will always be to help women achieve balance,” Meers says. “In a sea of CBD brands, Equilibria provides not just medical-grade products from our partner farm (in which we have an ownership stake), but also individualized support for each and every member we serve.”
Fortune recently spoke with cofounders Meers and Vermillion to learn more about their first year in business, the lessons they’ve learned, the hurdles they’ve overcome, and their plans for the next year.
Equilibria cofounders Marcy Capron Vermillion (left) and Coco Meers. Courtesy of Equilibria
The following interview has been condensed and lightly edited for clarity.
CBD has never been bigger, and the space is getting more crowded every week. What inspired the launch of Equilibria? And how does it stand out from the bevy of other CBD businesses on the market right now?
Meers: Throughout my career, I’ve always been inspired to create beauty and wellness innovations that benefit women. I am an active angel investor in female-founded, consumer companies, and after brand management roles at L’Oréal in New York and Paris, got my entrepreneurial start as founder and CEO of PrettyQuick (acquired by Groupon in 2015), a beauty-booking marketplace offering seamless reservations at salons and spas nationwide. When Marcy inspired me to take a look at CBD’s balancing properties, I knew this was an extraordinary opportunity to take best-in-class science and wrap it in a services-first consumer experience that women could trust.
Vermillion: As an engineer, I’ve always been a problem solver first and foremost. When I sold my innovation consultancy in 2017, it was my own personal experience with CBD that led me down a path of learning everything possible about this powerful and complex plant, eventually to the point of leading workshops and one-on-one sessions on the medicinal and bioregulatory potential of cannabis for women. After a year of collecting women’s cannabis stories (fears, hesitations, triumphs) and organizing a wealth of product development data around what exists in the market (both good and bad), I met up with Coco to talk shop, and we discussed the gaping hole in the cannabis market when it comes to women.
Not only were there few truly quality-driven, over-the-counter options, but it was clear that women need an authentic, respectful hand to hold while they learn about what cannabis can do for them. Someone who could walk them through experimentation and finding the right product, dose, and frequency as they embarked on this journey, without any condescension or judgment. I heard stories of my fellow women aged 25 to 80 who felt like they were out of options, and scared, and I couldn’t stop thinking about it. On top of my own success story of using cannabis for spinal nerve pain and mental well-being, it was a no-brainer that we couldn’t not take our dedication to the women’s consumer space and answer this call. That one, impassioned, electric conversation served as the inspiration for Equilibria.
What were some of the biggest hurdles you faced in the past year? What surprised you the most?
Vermillion: As a startup, we’re constantly inspired by growth and all the challenges it brings. The company achieved 50% month-over-month growth all of 2019 and continues to sustain rapid growth even in the pandemic reality—north of 20% monthly. Balancing this momentum and scalability is a constant juggling act that keeps us on our toes daily. As a product company with dedicated technology and a human-to-human service, we are actively managing all three work streams at once. As an engineer, [I’m making sure] we’re applying automation and logic where possible, but managing this velocity is not without literal daily challenges.
Also, being in a highly unregulated industry presents its own maze. CBD oil is not a supplement, and it’s not a drug, so there is a lot of gray area in terms of FDA regulation. The industry is constantly evolving, and restrictions are changing daily, so we’re continually reviewing our systems to ensure we remain compliant and ahead of the curve. This also affects our ability to innovate within the space, as product development with evolving constraints is difficult. But we are determined to give our members what they need even if it is difficult. We started this business to change lives, and we knew it was an uphill battle.
But, of course, the elephant in the room is COVID-19. What we’ve learned from our members is that women are in need of CBD’s benefits now more than ever, so we’ve done what we can to keep it as accessible as possible in this time. And we donated $100,000 of CBD to women on the front lines as nominated by our members: Who deserves stress management more right now than those women? It’s the very least we could do, even as a startup.
Meers: I echo all Marcy’s thoughts on opportunities and challenges throughout year one. We are deeply humbled by this exciting growth and have assembled an incredible team of more than 30 women, who are similarly dedicated to this mission of balance through cannabinoid science. While managing scaling challenges and regulatory uncertainty keeps the day-to-day exciting, the most rewarding part has been knowing that we are really making a difference in the lives of our members.
The Brilliance Box includes Daily Drops for targeted relief, Daily Softgels for a sustained release, and topical Relief Cream for local discomfort. Courtesy of Equilibria
What kind of feedback have you received from your customers, and have you (or will you) apply that feedback to how you sell your products in the future?
Meers: On the services side, more than 40% of our members choose to have a phone conversation with his or her personal dosage specialist to help unlock that perfect daily routine suited to his or her needs. Upwards of 60% of members are in touch with their dosage specialist through email. Our members rave about this personalized support. Life isn’t static, and neither are our bodies. In 2020, we’re doubling down on this personalized education with more ways to connect, like one-on-one chat and additional automation and recommendation engines.
Vermillion: On the products side, we hear heartwarming reviews on a daily basis about how our products improve quality of life for women. This feedback fuels everything we do.
For our Daily line, we’re working diligently on formulations that provide rapid onset and efficient bioavailability without the drawback of that signature cannabis taste (for those who don’t prefer the plant-forward oil). We have some exciting technologies launching throughout the year.
To round out our monthly subscription boxes, we’re also adding to our existing bath and body lines—our Relief Cream has a cult following for everything from period cramps to arthritis—in late May 2020. Combining cannabis with other proven botanicals for as-needed self-care in the form of a hot bath (Balancing Bath Bombs and Mindful Mineral Soak) or on-the-go “cannaromatherapy” (Dynamic Roller Duo) is another part of our mission. All of our product development is focused on rounding out how we help women tackle whatever’s thrown her way, from daily systemic CBD use to what’s needed in the moment when life calls for a little more.
Obviously, amid the coronavirus pandemic, consumers’ purchasing habits, and budgets, especially, are going to change. How does Equilibria plan to adjust to customer needs?
Meers: As Marcy mentioned, we have seen our members increase their daily dose and engage even more with our dosage specialist team throughout this unprecedented time.
On the financial front, we reacted very quickly in March with our “Here for You” campaign, in which we took 10% off every subscription renewal and new customer order. Going forward, we are evaluating new pricing structures which will allow us to offer our same high-quality CBD at lower monthly prices.
On the support front, we are growing our dosage specialist teams and expanding hours of coverage to be able to meet the needs of the community for more appointments. Our products and services were purpose-built to be extremely flexible, so whether members are bulking up or switching their routines around, we’re ready.
As noted, every Equilibria member is connected with a designated “dosage specialist” to help personalize his or her order. Has this changed during the shutdown period? How are customers connecting with specialists now?
Meers: We’ve always said that we’re a technology company first, so this is actually something that wasn’t heavily impacted. Our dosage team is able to maintain operations remotely and are accustomed to connecting with consumers via email, phone, et cetera.
During this time, I would say we’ve seen an increase in appointments by 20%, but also an uptick in customers emailing who are not able to do a phone call. We are adding chat functionality for this soon as well. Most members buy a starting dose kit and then talk with their dosage specialist once they’ve tried that for a week, and then their routine is adjusted from there.
At the same time, how does a shutdown of this nature affect the future of the business, from product development to raising capital?
Vermillion: While we haven’t yet seen any disruption to demand, we are building contingency into our supply chain at every level, from manufacturing partners to packaging vendors. Luckily our farm and lab has been unaffected, but we’re building as much redundancy into the system as we can to continue to offer uninterrupted service (and still launch innovative new products).
Meers: Having recently completed a $2 million raise, our balance sheet is healthy. We are continuing to invest in marketing and strategic hires and may choose to seek strategic capital later this year, but should the market require that we wait, we’re very fortunate to be able to be patient.
Looking beyond the post-pandemic era, which could be anywhere from a year to a few years from now, how do you plan to grow Equilibria, and what do you want the business to look like five years from now?
Vermillion: Looking out a few years, I want Equilibria to define how cannabis shapes the lives of all women everywhere. (Now: Over-the-counter hemp, but we haven’t ruled out a medical marijuana extension.) Usually as a product person, I say, “In trying to please everyone, you please no one.” But here we are with a market of approximately 25- to 80-year-old women. And that works in this industry because a woman needs Equilibria for different reasons in every decade of her life. Cannabis is an evergreen need. Not just for that daily roller coaster, but for new challenges in all stages of life.
Meers: Marcy and I are committed to advancing the mission of balance for women. Though Equilibria’s exponential growth to date has been thrilling, we’re not slowing down anytime soon! We believe that highest-quality cannabinoids have the power to improve life in myriad ways, for all women.
In five years, we hope to be a household name for premium cannabis products and services tailored specifically to women, whose biochemistry and complex lives warrant its balancing properties. We will always be a direct-to-consumer company at heart, but I suspect you’ll find us in select retailers and maybe with a few flagship locations nationwide. CBD is a journey, not a destination, and we’re prepared to accompany her all the way.


fortune--2020-05-18--The top 15 U.S. cities in the Fortune 500 by revenue

For sheer scope and scale, New York City still towers above all other U.S. metropolises as a business hub. This year’s Fortune 500 features 65 companies headquartered in the greater New York area, with a cumulative total of nearly $1.8 trillion in revenue—equal to 12.5% of the 500 overall. Second-place Dallas, meanwhile, got a major boost last year when drug distributor McKesson, No. 8 on the 500 list with $214 billion in sales, relocated its headquarters from San Francisco to tax-friendly Texas. But the combined clout of the tech economy continues to grow. The Fortune 500 companies based in America’s three biggest tech towns—San Francisco, San Jose, and Seattle—had total sales of $2.04 trillion in 2019. That’s enough to surpass even New York.
A version of this article appears in the June/July 2020 issue of Fortune with the headline “Power centers of the Fortune 500.”


fortune--2020-05-18--Huawei says “survival” is primary focus as U.S. expands restrictions on semiconductor sales

Huawei Technologies rotating chairman Guo Ping told attendees at the company’s annual analysts’ summit Monday that “survival” is the firm’s key objective in the wake of a new U.S. further restricts the Chinese telecom manufacturer’s access to semiconductors.
“Huawei is capable of designing some products, but we are not able to do a lot of other things. Currently, the priority for Huawei is to seek survival. Survival is the key word for us at present,” Guo said, responding to a question from a journalist joining via Zoom.
On Friday the U.S. Department of Commerce (DoC) announced a new rule requiring any semiconductor manufacturer outside of the U.S. to gain a special license in order to sell chips to Huawei if the U.S. technology is used at any stage of production.
The new rule specifically targets Huawei’s in-house chip design team, HiSilicon, which uses software developed by U.S. companies to design chips. The ruling also jeopardizes Huawei’s partnership with Taiwan Semiconductor Manufacturing Corp (TSMC), in particular. The Taiwanese fabrication plant manufacturers chipsets that HiSilicon designs.
According to Nikkei Asian Review, TSMC has already halted taking further orders from Huawei even though the Chinese company is TSMC’s second-largest customer. Orders placed before May 15 and due for delivery before September will still be completed, as the DoC’s new rule was issued with a 120-day suspension.
Happy anniversary
The U.S. ruling on Friday comes almost exactly one year after the Commerce Department added Huawei to its entity list, requiring U.S. companies to obtain special permission to trade with Huawei.
U.S. semiconductor manufacturers—some of which derive the majority of their revenue from sales to Huawei—lobbied Washington and won a 90-day reprieve on the Huawei blacklist last year. That reprieve has been renewed five times, most recently on Friday.
Despite the reprieves, Huawei suffered a $12 billion shortfall in its revenue projections last year as the U.S. piled more pressure on the company. Google decided to halt providing Android services to Huawei last year, as the threat of the entity list loomed. The impact was visible in the first quarter of this year, as Huawei’s overseas smartphone sales plummeted 35% over the same period in 2019.
In a statement today, Huawei said it expected business will “inevitably be affected” by the new rule, which it described as “discriminatory” as well as “arbitrary and pernicious.” The company says it is currently “undertaking a comprehensive examination of this new rule” to determine the extent of its impact.
Hit back
Last year China’s Ministry of Commerce responded to Huawei’s blacklisting by threatening to create an entity list of its own, to target U.S. companies. Despite once warning that the list was near completion, the threat never materialized.
Last Friday, however, after the U.S. Commerce Department announced its new restrictions, state-run tabloid Global Times once again raised the spectre of a Chinese retaliation.
“China is ready to take a series of countermeasures against a US plan to block shipments of semiconductors to Chinese telecom firm Huawei, including putting US companies on an ‘unreliable entity list,’” the Global Times said, citing an anonymous source and naming Qualcomm, Apple, Cisco and Boeing as possible targets of reprisal.
More must-read tech coverage from Fortune:
—Remote work, online grocery shopping, cord cutting: What coronavirus trends will stick
—No buses, no problem. Some cities provide subsidized Uber rides amid pandemic
—How to choose a video chat app? Grade it on privacy
—Listen to Leadership Next, a Fortune podcast examining the evolving role of CEO
—WATCH: Zoom’s ups and downs since the coronavirus crisis
Catch up with Data Sheet, Fortune’s daily digest on the business of tech.


fortune--2020-05-18--What businesses can learn from a coronavirus-tracking breakthrough

By mid-May Brazil was being ravaged by a brutal epidemic. COVID-19, which had already infected some 8% of the population, was beginning to swarm through the teeming cities of São Paulo and Rio de Janeiro. But it was a different scourge—a bone-crushing disease called dengue—that had already sickened nearly 700,000 Brazilians this year.
In the state of Mato Grosso do Sul (in Portuguese, the name means “Thick Bushes of the South”), a local newspaper reported a spate of recent dengue cases.
Five thousand miles away, in Boston, a machine-learning program plucked the news from an Internet site, mined the text (in Portuguese) for keywords suggesting an outbreak, and posted an “alert” on HealthMap—an online global disease warning system developed by epidemiologists at Boston Children’s Hospital.
On any given day, the global map on the nonprofit’s website is blanketed with over a thousand such alerts—each marked by a bright colored dot that links out to the source of the news.
The effort was cofounded in 2006 by John Brownstein, a Yale-trained epidemiologist who surmised that the data-filled detritus of the Internet—everything from local news reports to social media posts to chatrooms—offered potential real-time signals to the emergence of infectious disease. (One alert this May, for instance, was triggered by a Facebook post from the Public Works Department in Gainesville, Fla., which discovered a yellow fever mosquito, the same species that causes dengue, downtown.) “I thought, if you could tap into that, you could build a whole new view of global health,” says Brownstein, who is also the chief innovation officer at Boston Children’s Hospital and a professor of medicine at Harvard Medical School.
HealthMap screenshot showing the spread of Covid-19 in the US. Courtesy of HealthMap
Indeed, HealthMap was among the first sites to unearth evidence of the novel coronavirus in China—sending an automated alert to the World Health Organization on Dec. 30 that a mysterious respiratory disease was spreading through Wuhan.
And yet as powerful as the idea of HealthMap is, its success is also likely due to who’s helping to implement it day to day: The nonprofit has nine current Google employees working there. These “Google.org Fellows” are specialists in data mining, database development, data visualization, user interfaces, mapping, and more who have been lent to the initiative through a program started by Google.org, the search company’s innovative philanthropic arm.
Created by Jacquelline Fuller, president of Google.org since 2013, the fellows program is just a year old. But it’s a model that every major company ought to borrow—a chance to combine in-house technological expertise with the world-changing ideas that are waiting outside an enterprise’s four walls.
For companies, it’s also an opportunity to bring knowledge back inside. “In every case,” says Fuller, “we’re learning as well.”
And that’s what gives this idea the power to scale.
In fact, if I might speak for my Fortune colleagues, we had a similar experience putting together this 66th edition of the Fortune 500: In every story we reported, we learned a lot as well. What more could you ask for?
A version of this article appears in the June/July 2020 issue of Fortune with the headline “Learning by giving.”