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The donut of doom: Total earnings vs total tax in California

You’re about to quit your job and start living the life of a one-man entrepreneur. Living in your basement, you have no rent and no employees, and since you’re selling your skills you don’t need venture capita yet, but you’re still dreaming big. All things being equal, where should you base your business?

Tip: Probably not in the place where the taxman takes a red bite like this out of your income donut.

More specifically, in each of San Francisco, Helsinki, Sydney, Tokyo and Singapore, if your business earns $100,000 in net revenue and pays you a “ramen-profitable” $2000 monthly net salary:

  1. How much post-tax profit will your company make in a year?
  2. If all of this profit is paid out in dividends, how much does will you have left after taxes?

If you’re wondering why I picked those five cities, part of the reason is that it’s a nice geographical, cultural and political spread, but mostly it’s because I’ve either founded a company or worked for a company based in each of them.  The $100k net revenue/$2k net salary model, funding product development on the side, is basically what I modeled my one-man consulting company on back in 2006.

To jump straight to the answers, click here. If dividend imputation and municipal inhabitant taxes get you all tingly and excited, read on. Hardcore masochists who’d like to double-check my math are also invited to examine the gruesome innards of this Google Docs spreadsheet.

Disclaimers

This is a hypothetical exercise, so I’m going to simplify as much as I can, the accounting is still stupidly complicated and there’s a whole lot of cramming square pegs into round holes going on.  In particular:

  • I ignore all non-financial considerations. Visas, availability of talent, infrastructure, economic prospects, legal and political environment etc are all important real-world factors for locating a business, but out of scope for today.
  • $100,000 is net revenue, we ignore all expenses aside from salary and tax. In other words, $100,000 is what’s left over after business registration, accounting, stationery and whatnot, and we also assume that those costs are the same across all countries.
  • We assume sales tax does not apply.  This is not as unfair as it seems, since most countries exempt companies until they reach fairly high yearly sales thresholds and exclude online and/or international/interstate sales.
  • The business has no tax deductible expenses. This is particularly unrealistic for the United States, where 72,500 pages of federal tax code means creative deductions are a national pastime, but them’s the breaks.
  • Pensions are accounted for on a defined contribution (what-you-pay-is-what-you-get) basis, so $1 put in now is worth (at least) $1 later. This is true for Singapore, Australia, US 401(k)/IRAs and some Japanese corporate plans;  this is manifestly not true for US Social Security or the national plans in Finland and Japan, but for lack of a better measure we assume it is anyway.
  • Taxes are computed assuming that pension and health insurance contributions are tax-free, which allows me to ignore the distinction between employer and employee contributions.
  • The owner is a full-fledged local resident under 40 for the purpose of tax, pension, insurance etc brackets.
  • For the sole purpose of minimizing futzing about with exchange rates, for income tax thresholds etc I’m going to merrily assume that 1 USD = 1 SGD = 1 AUD = 1 EUR = 100 JPY. This is obviously not correct, but is not all that much worse than picking actual exchange rates that’ll be out of date in moments anyway.

Last but not least, this is a work in progress, a revision history is at the bottom of the article.   Now, let’s roll up our sleeves, channel the spirit of the late great Herbert Kornfeld, and balance this shit wit’ a quickness.

Round 1: Paying a salary

$2000 x 12 = $24,000, leaving $76,000, right? Not so fast. There are four main things to worry about here: income tax, pension fund contributions, payroll taxes and health insurance. Both pensions and health insurance are tricky since our countries’ systems vary so widely, so we’ll just attempt to standardize the legislative minimum. And since all these fees are usually percentages of salary, we have to work our way backwards starting from desired post-tax income to get to the employer’s cost.

Golden Gate BridgeIn San Francisco, I’m going to cheat a bit and outsource the otherwise horribly complex income tax computation to the MIT Living Wage Survey, which figures that for a single adult, it takes pre-tax earnings of $26,692 to have $1,929/mo left over after tax, an effective tax rate of 13.28%.  Optimistically assumes that rate stays the same at $2,000/mo, we now need $27,675.  Next, we add in a 6% employee pension contribution with 6% employer matching (+$3203) and boost medical from $149/mo to a post-Obamacare estimate of $368/mo (+$2628).  On top of this, employers have to pay 6.2% of wages for Social Security, which I’ll lump as a “pension” for the purposes of this article; 1.45% for Medicare; 3.4% for CA unemployment, plus 1.2% and 0.1% of the first $7,000 only for federal unemployment and employment training tax respectively. (Huge props to ZenPayroll.)  In a rare bit of good news, SF’s payroll tax (1.5%) only applies once total salaries exceed $150,000, so we can ignore this.  We thus arrive at $36,773.

Ice, HelsinkiIn Helsinki, personal income tax is so complicated the only sane way to compute the effective rate is to punch numbers into the official tax calculator.  A gross income of €29,000 and zeroes for everything else, including being a godless pagan who avoids church tax, nets income of €23,978, for an effective rate of 17.32%.

As a >30% shareholder of his own company, our hero can apply the lower “YEL” pension employer contribution of 17.55% for two years.  On top of this, we have the employee side pension contribution of 5.15%, 2.04% mandatory health insurance, and 0.80% employer/0.60% employee unemployment insurance.  We thus arrive at €36,615, which is, rather incredibly, a hundred bucks less than SF, and this gets you a cradle-to-grave Scandinavian welfare state!

Expressways in Shinjuku, TokyoIn Tokyo, national income tax (shotokuzei) is 5% for the first Y1.95 million and 10% above, plus a flat 4% prefectural and 6% municipal tax (which combine to form jūminzei, resident tax), which works out to 16.6%.  For pension, you can pick the national plan (kokumin nenkin) at a fixed Y14,980/month regardless of income, or a standardized company pension (kōsei nenkin) at 17.120% split evenly between employer and employee; being cheapskates, we pick the national plan.  National health insurance is 80% of municipal and prefectural tax paid, which in Tokyo equates to 9.97% split between employer and employee. Phew!  (Dōmo arigatō to Japan Consult.)   Final damage 33,448 hectoyen, and I’m delighted to find out that I’m apparently the fifth person in the history of the Internet to use that lovably awkward term.

Sydney Opera HouseIn Sydney, the Tax Office says the first $18,200 of income are tax-free and the next bracket until $37k is 19%, for an effective rate of 5.36%.  The minimum pension (superannuation) contribution is 9.25% and Medicare (public health insurance) levy is 1.5%, and since our total income is under $84k, we’re not required to pay the Medicare levy surcharge for not having private insurance.  Payroll taxes in Australia are administered at the state level, but New South Wales only applies its rate of 5.45% once payroll exceeds $750,000, so that particular bullet is dodged, and at $28,087, the end result is easily the lowest of the bunch.

Shophouses in Katong, SingaporeIn Singapore, income tax is easy: 0% for the first $20k, 1.4% for the next $10k (usually 2%, but they’re discounting 30% in 2013), for a scarcely believable effective rate of 0.24%.  Mandatory pension (CPF) contributions for employees under 50, which include a health insurance component, are 16% for the employer and the 20% for the employee, with a maximum contribution of $1800/mo (not applicable here). The only other obligatory cost is the Skills Development Levy at 0.25% of salary, capped at $11.25/mo.  This equates to $32,777.

We can now compare the total cost of employment, ie. how much it costs the company to pay the owner that $2000/mo salary:

Employer cost vs take-home pay

But while taxes disappear into the gaping jaw of Leviathan, pensions are retained by the owner in some form of another (see Disclaimer), so a more instructive comparison deducts salary and pension from total cost to arrive at what I’m calling “employment overhead”:

Employment overhead

At the end of Round 1, Singapore is the clear winner ($117!) and Sydney a close second, followed by Helsinki and, at the back of the bus, Tokyo and San Francisco, where nearly $8k disappear in a puff of smoke.

Round 2: Corporate tax and dividend taxation

In our idealized mini-company, everything that was not paid out to the employee is pure profit. If the company wants to dish them out to its sole shareholder, how much do they get after the taxman takes his share?

Cable car, San FranciscoIn California, a C corporation pays 8.84% corporate tax.  (A pity we’re not in Nevada, where it would be zero.)  Pile on federal taxes at 15% to $50k and 25% to 75k, noting that you can deduct your state corporate tax first, and we get 23.7%. Since California treats dividend income as ordinary taxable income, in the $36k-to-87k tax bracket you’re looking at 25% to Uncle Sam, 12.3% to California, 3.8% to Medicare and 1.2% for “deduction phaseouts” (wat?), totaling a whopping 42.30%. Tot these up, and our entrepreneur is left with 44% of what the company earned, or $27,828.  And if that sounds bad, here’s a calculation that arrives at 26% when you max out both tax brackets!

That said, if you’re going to do this in real life and do not have ambitions to grow to be the next Google, you should almost certainly opt for an S corporation or an LLC instead.  These don’t pay corporate taxes: instead, they pass their income (or loss) onto their shareholders, who then pay normal income taxes.  This is good if you’re keeping the money, but terrible if you were planning to reinvest it.  However, since all other corporation types in this little survey are “real” companies that can choose to reinvest or issue dividends, I felt that a C corporation is a fairer comparison point.

Geese in Hietaniemi Bay, HelsinkiIn Helsinki, both corporate tax and the tax treatment of dividends was revamped in 2013.  From January 2014 onwards, corporate tax is 20%, leaving €63,385 in post-tax profits.  The basic capital gains tax on dividends is 30% (but 32% above €40k), with a tax break of 75% on the first 8% of “free capital”, which for our newborn company equates to the total yearly profit.  This works out to an effective rate of 28.59%, leaving €36,211 in our hero’s bank account.

Cherry blossoms in Korakuen Garden, TokyoIn Tokyo, corporate taxation makes Japanese payroll and income taxes look simple.  Based on this handy summary from JETRO, for “a small company in Tokyo”, corporate tax is 15%, “restoration corporate surtax” (read: Fukushima surcharge) is 1.5%, prefectural and municipal “inhabitant taxes” in Tokyo are 0.75% and 1.85% respectively, “enterprise tax” is 2.70% (I presume this is meant to discourage entrepreneurship?) and as a cherry on top “special local corporate tax” is 2.19%, for a total of 23.99% but an effective rate of 22.86% for reasons I won’t even claim to understand. But wait! Once your earnings top Y4m, new rates apply and you now get socked for 24.56%.  In effect, the effectively effective rate is an ineffective 23.54%.

So that’s taxes, now dividends, which are even more like tentacle porn. To quote Japan Tax, “As so often seems the case with Japanese individual taxation, what would be expected to be a simple tax matter is made overly complicated by a range of expiring tax benefits (that are often revised or extended) and a range of alternative obscure reporting elections, deductions or exemptions.” The short of it is that the withholding tax rate for unlisted shares is 20%. The long of it is that you can then choose to report or not report it as ordinary income. If you do report, you have to pay income tax, but receive a dividend deduction of 12.8% for overall income of Y10m or less but 6.4% above which offsets the withholding tax and, you know what, fuggedaboudit. Pay 20%, end of story, and keep 40,709 hectoyen.

Sydney Monorail on Darling BridgeIn Sydney, company tax is a flat 30%, no if ands or buts, and the highest rate in our survey.  Dividend income is treated the same as ordinary income and taxed at same rate, except that thanks to dividend imputation you get “franking benefits” that are meant to offset the corporate tax already paid.  Acting on the optimistic assumption that they do, this means all that’s left is the difference between the corporate tax rate and the receiver’s marginal income tax rate, in our case 32.5% (for the $37k+ tax bracket) plus 1.5% levy, or 4%.  This leaves a rather juicy $48,326.

Singapore city at duskIn Singapore, corporate tax is usually 15%, but new companies in many sectors including IT pay zero (0%) tax for the first three years for their first $100k in profit, no special applications needed.  There’s also a whole slew of other tax incentives, including 4x deductions of IT gear and, most incredibly, cash transfers of up to $5,000/year from the tax man for companies that make a loss despite earning over $100,000 in revenue, but that’s another story and our rules exclude this kind of thing anyway.

Singapore has no capital gains tax, so Singapore company dividends are also tax-free. The company can thus pay out $67,223 in dividends, and the shareholder gets every last cent. This means our entrepreneur’s yearly earnings after tax are $91,223, and adding in the $8,640 sitting in their pension fund, they have managed to hold on to $99,883 of it.

Company profit vs dividends after tax

Dear reader, if you made it this far, I salute you. Now all that’s left is to sum up your salary, your pension and what’s left of your dividends to see how much of your $100,000 you still have left over.

Conclusion

Total left over from $100k

Singapore romps home as the undisputed winner, with the entrepreneur keeping a scarcely credible 99.9% of what they started with. It’s just a real shame that, for political reasons, the government has recently gutted the EntrePass scheme and thus made it close to impossible for a foreign one-man entrepreneur to set up shop.  (If you’re keen anyway, check out the Singapore Expats “Business in Singapore” forum or drop me a line.)

Somewhat to my own surprise, Sydney rocks up in second place with 74.6% left over.  Australia’s not what you’d call a low-tax (much less low-cost) country, but income tax is highly progressive and the dividend franking system means you only pay tax once on dividends, meaning that at low incomes you get to keep most of what you earn.  The calculus would change pretty rapidly if you earned $200k and found yourself in the 45% income tax bracket.

Helsinki and Tokyo show up neck and neck in 3rd and 4th place, with 66.8% and 66.5% respectively. Both have heavy taxation of income, payroll, corporate profit and dividends, but no total clangers. (Except Finland’s 24% value-added tax, the exclusion of which makes Helsinki unrealistically rosy, unless you can source all your income from outside the EU.)  The canny entrepreneur could nudge up both of those figures: in Tokyo, you’d actually want to pay yourself more salary since income tax is lower than corporate tax, while in Helsinki the reverse applies.

And trailing the pack with barely half left over is poor old San Francisco with 56.9%.  Now obviously there’s more to deciding where a company sets up than taxes, because otherwise Silicon Valley would be empty… but unless you really need to be there, from a financial point of view setting up pretty much anywhere else seems to make a whole lot more dollars and cents.

Acknowledgements

Thanks to corporate law ninja Joe & serial entrepreneur Juha for a sanity check of the US, Finland and Japan calculations, Tuomas Talola for corrections to Finnish calculations, and my Singaporean accountant, the infatigable Ms Tan, for clueing me onto this stuff back in the day.  If you spot any mistakes, drop me a line.

Incidentally, Joe says that a fairer version of this exercise would model the corporate and personal taxes of each country and then solve for the optimal combination of salary and dividends.  Any takers?

Revision history

31 Oct 2013

  • Recomputed Finnish income taxes with tax office calculator.
  • Adjusted Finnish employer pension to use YEL rate instead of TyEL rate.
  • Corrected Japanese pension to pay national pension (kokumin nenkin) only.

not-the-endCommenting on the affairs of past employers is bad karma, but the media circus surrounding Lonely Planet’s recent restructuring, with Skift’s hash of disgruntled misinformation and the Guardian’s premature obituary, is sufficiently misguided to warrant an unsolicited opinion.

Lonely Planet is and has always been a print publishing operation. Despite their carefully cultivated hippy-dippy image, the Wheelers ran a tight ship and LP was known in the industry for being able to produce and distribute more guidebooks of higher quality at a lower cost than anyone else in the business. This was achieved by a relentless focus on tweaking the publishing machine, and during my time there were regular mini-celebrations for (say) switching to a new printer that allowed cheaper color pages or trimming editing time by 10% by automating tasks that were previously done by hand in layout.

Yet being a print house left the company unprepared for the digital era, and despite its early web presence, it never seized the chance to become Expedia or TripAdvisor. Two anecdotes illustrate why:

Industrial History Museum, Merrickville, CanadaEarly on, one of the publishing execs was taking me through The Spreadsheet, which forecast in minute detail and often with stunning accuracy how much a book would cost to create and how much it would sell, taking into account everything from the cost of public transport in the destination to the impact of upcoming titles from the competition. Offhand, she remarked, “I don’t think we should be investing in digital until its revenues exceed print.”

Taken at face value, this seemed absurd. How would digital ever grow without any investment? Only later did it dawn on me: “investment” for her meant doing what the spreadsheet measures, which is putting money into books. Digital revenue would come anyway from e-books, which would be faithful replicas of print books, and once the magical 50% tipping point was reached, they could start by adding video clips of the Eiffel Tower to page 294 in the e-book.

But what if people don’t want e-books?

Later on, I mentioned the travel potential of Google Glass to one of the people in the product development team, responsible for dreaming up Lonely Planet’s future products. “Yes!”, he enthused, “just imagine if somebody wearing Glass looked at our guidebook, and they could see the latest edits superimposed on top!”

But what if people stop buying printed guidebooks?

Mind you, these were both consummate publishing professionals who live and breathe print. So at the end of the day, even though they and others at LP knew in their bones that print was falling, and that e-books and apps weren’t making up the slack, they simply didn’t know what to do about it, other than to cut more costs and churn out more books.

The new CTO Gus, on the other hand, does. LP’s asset is its independent content beholden to no-one, which drives its website and its brand. Despite debacles like BBC’s catastrophic mismanagement of Thorn Tree, at 100m+ visitors/year LP’s digital footprint remains head and shoulders above its print competitors, and its vetted content has no match (yet) elsewhere in the digital world. What’s more, they’ve already spent years putting in the hard yards to bring their technical backend up to speed as well. A relentless focus on digital is LP’s best shot at survival, and last week’s layoffs, far from being a portent of doom, are the most concrete sign yet that NC2 Media gets this as well.

National Arboretum, Canberra, AustraliaParticularly important is the unheralded switch to a “destination editor” model, which finally breaks the stranglehold the book publishing schedule has had on the operations of the entire company.  For example, this will allow the website to be updated continuously, instead of having to wait for the next book edition to roll around.  Far from giving up on content, this puts it front and center, and the move parallels The Guardian‘s digital transformation that has seen the newspaper grab a sizable online audience far outside its native UK market.

None of this diminishes the human tragedy of letting go people who have poured years of their lives into what was indeed for many more of a family than a company. But as the only alternative is slow and inexorable decline guaranteed to lead to the elimination of every single job, this is the best hand the company can play.  As the last page of LP’s guidebooks used to proclaim: “THIS IS NOT THE END”.

“We expect DVD Subscribers to decline every quarter.. forever.”
— Reed Hastings, CEO, Netflix

Does your business model rely on selling paid content?  Welcome to Mr. Hastings’s world.

Books

Many publishers continue to operate under the assumption that printed book sales are declining gradually or perhaps even plateauing.  Unfortunately the data tells a different story: the decline appears to be accelerating.  Here’s Nielsen Bookscan for the travel market:

Printed guidebook sales, millions/year

That’s from the “Guidebook Category Report, Rolling, Period 13″ for 2006 to 2012.  The trendline is a simple polynomial (n=2) best fit, and if it’s accurate, the market will halve by 2015.  And while that sounds drastic, it’s by no means unprecedented, as the sales of CDs did pretty much the same thing in 2006-2009.

Of course, the market’s not quite homogenous: Lonely Planet’s been beating the trend, mostly by continuing to invest in print and absorbing customers from the rapidly-disappearing Frommers. But that just makes LP an even-bigger fish in an ever-shrinking pond.

So can the white knights of digital paid content, e-books and mobile apps, save the publishing industry?

E-Books

Finding good data for e-books is a pain, so I ended up rolling my own: I grabbed Amazon’s Kindle Store Top 100 bestsellers lists since 2007, using snapshots from the Internet Archive that record the actual prices at the time, and computed average prices and the proportion of under-$5 titles, the vast majority of which are self-published.  (Source code in Ruby here.)

Average price of e-books in Kindle Store Top 100

Despite that December 2012 spike, the trend is clear, and while the decline looks gentle, my personal suspicion is that the trend line is too optimistic and that there’s a collapse looming.  For one thing, the data above is only for best sellers, meaning new books by well-known authors who command a distinct price premium; the average price of an average e-book is both lower and falling faster.  Yet even in the Top 100, the share of “cheap” books, the vast majority of which are self-published, is growing exponentially:

Books Under $5 in the Kindle Store Top 100

While I didn’t use their data directly, I owe tips of the hat to Piotr Kowalczyk, who wrote a very detailed report on the growth of self-published books on Kindle, and Digital Book World, which has been keeping tabs for the past half year (albeit looking only at the top 25).  DBW also has a credible explanation for the spike, which boils down to publishers yanking up prices in the period before they had to start allowing discounting, and further reinforces that shrinking prices are the new normal.

Apps

The collapse of prices in the mobile app world has been even more drastic, to the point that outside an  elite circle of bestsellers and the odd very specific niche, making money by selling the app itself is a pipe dream.  (All data courtesy of 148Apps.biz and the Internet Archive.)

Average price of paid applications in the Apple Store

By the end of the year, the average app will cost under 99 cents, and even that’s pulled up by every $999 BarMax and wannabe in the store.  The median price is already zero:

Share of free applications in Apple Store

In other words, over half of all apps are already free.  On current trends (and look how beautifully that line fits the data!), that will be over 80% within two years.  This is for the “premium” Apple Store widely opined to have less stingy customers; the equivalent figures for Android will be even more brutal.

What to do then?  The only answer is to figure out a way to make money that doesn’t involve readers paying for content.  Here are some ideas:

TL;DR: Google is trying to position its Google Glass headset as a consumer device with the cool factor of an iPhone.  But its initial users are likely to be businesses, and they will need to be convinced about the value it will deliver, not its appearance.

Hardware revolution

Lenin Museum, Tampere, FinlandWe fling about the word “revolutionary” with wild abandon these days.  The primary hardware innovation of the Apple iPhone, for example, was really just an evolutionary step. Replacing a keypad with a touchscreen meant that, instead of holding your phone in one hand and watching its screen as you tap the keys with the other, you could now hold your phone in one hand and watch its screen as you tap the screen with the other.  As we know, this seemingly subtle change proved to radically enhance the usability of the phone and set the benchmark for today’s smartphones — but they’re still smartphones.

Google Glass, on the other hand, is genuinely revolutionary piece of kit.  As the first real consumer-grade attempt at an augmented reality computer, it completely dispenses with the screen, the keypad and even the entire “holdable” device itself.  This means throwing out every user interface paradigm developed since the 1970s, when computers started to look like today’s computers, and building something entirely new to replace them.  Gulp?

Yet Google appears to be petrified of something different: that the device will be perceived of as “dorky”.  As you can see from the picture to the right, I can personally attest that this fear is not entirely misguided: real-life wearable computers (and their wearers) do tend to fall more on the side of “geeky” than “cyberpunky”.  Google’s marketing to date has thus consisted nearly entirely of increasingly odd antics to make it “cool”: stunt cyclists performing antics on the roof of a convention centre, skydivers leaping out of airplanes and an entire fashion show with slinky models strutting their stuff.

But let’s step back in time.  Imagined being offered the chance to clip a unwieldy, heavy plastic box to the waistband of your bell-bottomed pants, bolt two bright-orange foam sponges over your ears with a shiny metal hairband, and string these bits together with wire.   Would you pay good money for this fashion disaster?

If it’s the 1970s, hell yeah: the Sony Walkman was a runaway hit.  Never mind the clunky appearance, the mere fact that it for the first time let you listen to music anywhere was worth the sartorial price of admission.  And without that ability, the minor miracles in miniaturising and ruggedizing of the unwieldy tape decks of yore necessary to produce the Walkman would have gone to waste.

Software evolution

But Google isn’t talking, at all, about what you can or, more importantly, could do with the Glass: their famous promotional video shows the capabilities of various existing Google apps doing precisely what they do now, only on a heads-up display.  Sure, the user interface has changed radically, but the capabilities have not.

So will those existing apps on Glass be slick enough to make it a must-buy?  Despite Google’s all-star developer team, their track record for customer-facing products is distinctly spotty and the sheer challenge of designing an entirely new way to interact would perplex even Apple.  The little we know of the hardware also indicates that some technologies considered key to heads-up interaction, notable eye tracking, are not going to be a part of the package.  It’s thus exceedingly unlikely that the first iteration of Glass’s UI will nail it, and Google’s reluctance to reveal anything about the interface’s actual appearance and behavior strongly hints that they have their doubts as well.

Odds are, then, that Google Glass will be a dorky-looking product that offers an inferior interface for the kind of things you can do easily with a modern mobile phone, which has, after all, evolved for 20-plus years in the marketplace.  This is not a recipe for success in the consumer marketplace.

The solution?  Sell the Glass on what it can do that nothing else can.

Five things you can do with Glass that you can’t with a mobile phone

Gift shop, Barentsburg, Svalbard

1) Simultaneous interpretation.  Hook up two Glasses so they can translate each user’s speech and beam it over to the other, where it is displayed as subtitles.  Presto: you can now hold a natural conversation and track all the nonverbal communication that would be lost if you had to glance at your smartphone all the time.

(Not coincidentally, I wrote my master’s thesis on this back in 2001.  My prototype was a miserable failure because computer miniaturization, speech recognition and my hardware hacking skills weren’t up to snuff, but I think Glass provides an excellent platform for producing something usable.)

2) Tactical awareness.  A mobile phone app that shows the location of alerts and/or other security guards would be rather useless: what are you going to do, pull out your phone and start browsing your app directory when the robbers strike?   The same application for an always-on Glass, on the other hand, is a natural fit.

(This, too, is by no means a new idea. MicroOptical’s heads-up display, the direct predecessor of the optics behind Google Glass, was the result of a DARPA grant for the US Army’s Land Warrior project.  The pathetic fate of that project, which ran from 1994 before being cancelled in 2007 and kicked off again in 2008 without ever accomplishing anything of note, also hints at why Google is, probably wisely, steering far clear of the bureaucratic morass of military procurement.)

3) Virtual signage.  Imagine an enormous warehouse filled with a variety of ever-changing goods, along the lines of an Amazon or UPS logistics center.  Right now, to find a given package in there, you’d have to “look it up” on a PC or smartphone, get a result like “Aisle C, Section 17, Shelf 5″ and match that to signage scattered all over the place.  What if your Glass could just direct you there with visual and voice prompts, and show you the item number as well so you don’t have to print out and carry slips of paper?  The difference sounds almost trivial, but suddenly you’ve freed up a hand and reduced the risk of getting run over by a forklift as you squint at your printout.

(Back in 2004, commercial wearable computing pioneers Xybernaut sold pretty much exactly this idea to UK grocery chain Tesco, but their machines were clunky battery hogs so it didn’t pan out too well.  Xybernaut’s subsequent implosion after its founders were indicted for securities fraud and money laundering didn’t help.)

4) Surgery.  Surgical operating theatres are filled with machines that regulate and monitor and display a thousand things on a hundred little screens, with tens of bleeps and bloops for various alerts and events.  What if the surgeon could see all that information during a complex procedure, without ever having to take their eyes off their actual work?

(Once again, some products that do this already exist, but Glass has the potential to take this from an expensive, obscure niche to an everyday medical tool — once the FDA gets around to certifying it sometime around 2078, that is.)

5) Games set in reality.  Mashing up reality and gaming is hard: countless companies have taken a crack at it over the past decade, and all foundered on the basic problem of having to use a tiny little mobile display as the only window into the game world.  As Layar’s lack of success indicates, running around holding a phone in front of your face isn’t much fun, and relying on location alone to convey that there’s an invisible virtual treasure chest or tentacle monster in a physical alleyway stretches the imagination too much.  But with an augmented reality display, this will suddenly change, and Valve is already making a big punt on it, although Michael Abrash rightly cautions against setting your expectations too high.

What next?

Antenna station, Barentsburg, SvalbardNotice one thing about the first four ideas?  They’re all business applications, whose customers will willingly tolerate a clunky, somewhat beta interface as long as they can still get real dollars-and-cents value out of it.  This is how both PCs and mobile phones got started, and once the nuts and bolts are worked out, the more mature versions can be rolled out to general consumers.

And once Glass (or something like it) reaches critical mass, we’ll suddenly have streets full of people with network-enabled, always-on video cameras, and a rather scary world of possibilities opens up.  Add object recognition, and you can find litter, vandalism, free street parking spots.  Add data mining, and you can spot the suddenly crowded new cafe or restaurant, or catch the latest fashion trend as it happens.  Add face recognition, and you can find missing persons, criminals and crime suspects.

To Google’s credit, they are partnering with other developers almost from day one, and there will undoubtedly be even better ideas than these largely unoriginal off-the-cuff thoughts.  We can only hope that the idea is spotted and executed well enough to turn it into Glass’s killer app…  but if Google keeps on being awfully coy about Glass’s capabilities, limiting access to dinky two-day hackathons and envisioning Google+ as the main use case, that day may still be some way away.

Tomorrow, January 15th, marks the official launch date of Wikivoyage, the new free travel guide from the Wikimedia Foundation.  Born from a split with Wikitravel, here are six reasons it’s already better than its ancestor.

  1. Wikivoyage has a great mobile version.  This uses the same systems as the massively popular mobile version of Wikipedia, and is thus fast, compatible with virtually every device, and close to bug-free.
  2. Wikivoyage supports scrollable, zoomable web maps, courtesy of OpenStreetMaps.  These are so new there aren’t many around yet, but here’s an example from the Italian page for Funchal; expect to see plenty more soon.
  3. Wikivoyage lets you collect articles into books, which can be turned into a PDF or EPUB for offline reading, or shipped to you as a printed book.  (And thus Wikivoyage Press came to life at the flick of a switch.  D’oh!)
  4. No more screen scraping: full data dumps of Wikivoyage are already available.  Thanks to the Creative Commons license, you can freely use this data for travel mashups and more.
  5. Thanks to its active community, Wikivoyage already gets more content updates, and has spam firmly under control thanks to the Foundation’s years of experience in combating it.
  6. Last but not least, Wikivoyage does not suck: there are no punch-the-monkey ads, in-your-face flight booking dialogs, database backends that flake out randomly when you’re trying to edit, or company-appointed admins who censor and ban at will.

So what does this mean in practice?

Short term impact

As part of the launch, every Wikipedia page that once pointed to Wikitravel will now start pointing to Wikivoyage instead.  In addition, every Wikipedia page will temporarily be festooned with a notice pointing to the site, which means a cool 6.5 billion ad impressions a day. The traffic boost from these will be massive, so you can expect to see a lot more Wikivoyage in your search results quite soon.

South Beach, Perhentian Besar, MalaysiaThis is not to say it’s all peaches and cream, as the site remains a work in progress.  For example, while merging Wikivoyage’s image backend with Wikimedia’s Commons allowed access to a wealth of new pictures and illustrations, it also means that several thousand pages now have broken image links.  These are being fixed one by one, and the backlog has already been cut in half since mid-December, but plenty of work remains.

Long-time readers may also recall that there was a complicated tangle of lawsuits between Wikitravel’s owner Internet Brands (IB), some of its erstwhile users, and the Wikimedia Foundation.  The first lawsuit, by Internet Brands against two Wikitravel users, was dismissed on November 28, 2012, and although they could technically try again in state court, IB appears to have given up (unsurprising, as they had no case).  The second and arguably more meaningful lawsuit between the Wikimedia Foundation and Internet Brands is still rumbling on though, with both sides stomping around the sumo stadium, slapping thighs and grunting menacingly, but no court date set.  Keep an eye on the Wikimedia blog for updates; nonetheless, the Foundation has stated that this will have no impact on Wikivoyage itself.

Long term impact

While I have no doubt that Wikivoyage will surpass and supplant Wikitravel, its impact on the wider travel industry remains an open question.  For Wikivoyage to become as globally ubiquitous as Wikipedia, at least some of these hard problems will have to be cracked:

  • Oysters in Adelaide, AustraliaClearer separation between objective and subjective travel information.  Wikis are great for “the train takes 15 minutes and costs $2.50″, but not so much for “the pizzas are great and the music rocks”.  Allowing multiple comments, reviews or ratings of some kind for listings is needed.
  • Building a database backend.  Wikivoyage articles are long, flat pages of text, with a little markup for points of interest and geographical hierarchy.  Turning them into anything other than pages of text, or even getting the various language versions to share information, would require reworking the site to use a database of some kind, not a trivial exercise, although it would definitely be an intriguing application for the budding Wikidata.
  • Lack of vision and desire.  To a first approximation, the Wikimedia Foundation allocates its meager resources based on site popularity, which is why Wikipedia gets almost all of the love and the Foundation will have precisely zero Wikivoyage people on staff.  This means that not only is the Foundation unlikely to be able to make the large investments needed to bring the site to the next level, but there won’t even be anybody who could direct those investments if the money and will suddenly came up.
  • Lack of funding.  That money is unlikely to come up, though, since Wikimedia is funded entirely by donations and the vast majority of them go to pay for Wikipedia.  While adding eg. hotel bookings to Wikivoyage would be a near-guaranteed money spinner and, if done right, a genuine enhancement to the site, it would be an uphill battle to get the occasionally rabidly anti-capitalist wider Wikimedia community to accept this taint of Mammon.

I should probably underline that I’m not trying to rag on the Foundation with those latter two points, they’re operating quite sensibly with the constraints they have as a non-profit organization.

This also explains why, as a travel industry insider myself, I don’t think Wikivoyage poses an existential threat to TripAdvisor, Google or, for that matter, Lonely Planet: it’s simply not playing the same game.  Quite the contrary, it promises to be a great resource of information for everybody.  In the same way that Google pulls in data for Wikipedia for its search results and Lonely Planet’s website uses images sourced from Wikimedia Commons, other travel guides will be able to complement their own content with additional data from Wikivoyage.

 

Before I joined Lonely Planet, I ran a little startup called Wikitravel Press, which packaged up Wikitravel articles and sold them as print-on-demand books.  Despite revolutionary tech, a great team and hard work, it didn’t pan out the way we’d hoped, and this is the story of the lessons I learned the hard way.

TL;DR: Lesson 1 | 2 | 3 | 4 | 5 | 6 | 7

Conception

Back in 2005, I was a vagabond telecoms consultant, flitting around the world setting up messaging systems for mobile network operators.  I loved the travel, to the extent of willingly giving up my apartment and living out of a rollaboard suitcase for a year and half, but endlessly hashing through the requirements-deploy-test-rinse-repeat cycle was starting to get old and I found myself spending more and more time on Wikitravel.

And at some point, I had an epiphany.  One of Wikitravel’s goals since its earliest days was to produce printable guides.  The volume and quality of content was starting to reach the point where the best destination guides were book-sized.  What if I could extract the content, automatically lay it out into PDF, and publish it as an actual book through a print-on-demand service like Lulu?  Compared to existing guidebooks, the advantages seemed vast:

  • The content would be as fresh as the website, unlike the 2-3 year research-to-print cycle of a typical guidebook.
  • The content would be continually updated for free by volunteers, instead of expensively and occasionally by paid authors.
  • Printing on demand would eliminate warehouses, inventory management, returns and many other banes of a publisher’s existence.
  • Printing on demand would allow creating customized, niche guides that would not be economical for a traditional publisher that needs print runs of at least several thousand copies.

But the seed of hubris had already been planted:

Lesson #1: Do not base your startup on more than two innovations. >>

Pulling off the company would have required 1) turning a free-for-all wiki into publishable content, 2) completely automating the transformation of that digital content into printed books, and 3) building a new way to distribute these fresh but very perishable books.  If any of these legs failed, the stool would topple over.

(The credit for that quote, by the way, belongs to someone else; I remember seeing it back in 2007, shortly after launch, and thinking, “Crap”.  But I’m unable to track it down, anybody know who said it first?)

Gestation

I hacked together enough of a prototype with LaTeX and a forked version of Deplate to convince myself that the primary technological challenge, turning Wiki pages into a book-like PDF, was solvable, and then got in touch with Wikitravel founders Evan and Michele to see if they were interested.  They were, very much so, but there was a major catch: they were right in the middle of selling the website to Internet Brands (IB), and I had to cool my heels until that was all sorted out.

Now Evan and Michele, being smart cookies, had already made a point of retaining print rights to the Wikitravel brand.  However, Internet Brands still had a say on who could use those rights and how, so we had to fly over from Singapore and Montreal to Los Angeles to meet IB, pitch the idea, draft agreements, get lawyers to look it all over etc, all an unnecessary cost and distraction compared to if had it been just the three of us.  The deal we came to was fair enough, and essentially boiled down to IB giving us free ad space on the site and reasonably free reign in print in exchange for a cut of any future profits.  But here, too, lay another seed of destruction.

Lesson #2: Do not rely on a third party that does not share your goals and interests. >>

For Wikitravel Press, the support of Internet Brands was critical: without it, there was no brand, and without the brand there was no company.  (The very name of the company relied on an Internet Brands trademark!)  But for Internet Brands, Wikitravel the site was just one brand in a stable of dozens, and a dinky little appendix to that site producing no revenue was at the absolute bottom of the priority list.  We were now stuck: they had negotiated the initial agreement because legally they had to, but once the ink on that was dry, we would have absolutely zero leverage with them until and unless we started raking in serious profits.

Birth

Nevertheless, we signed the agreement and the next year passed in a blur.  I quit my job and  started doing the million and one things needed to get this off the ground.  We set up Wikitravel Press, Inc in Montreal, Evan and Michele’s hometown.  (I would have preferred Singapore, a considerably more business-friendly locale, but for Internet Brands even Canada was rather exotic.)  Since the initial costs were low, we opted not to pursue venture capital, financing it ourselves.

On the technical side, I had to turn the engine from a crude prototype into something solid enough for production use, wrap it with a user interface that editors around the world could use, and integrate its output into Lulu.  Mark Jaroski whipped up an inspired piece of hackery that pulled street data from OpenStreetMap, mashed it together with Wikitravel listings and spat out printable guidebook maps.  We sourced a design for the books (hat tip to TheAgence), found one of the three people on the planet who understood the dark arts of LaTeX templating well enough to automate the layout (the brilliant Alistair Smith of Sunrise Setting), built pricing and royalty models, experimented with book formats, and more.

And, of course, we had to find some people to actually write the books.  Our ultimate goal was always to allow people to print anything they wanted whenever they wanted, but Wikitravel’s content quality was too uneven for that, and neither was our technology up to the challenge.  So we compromised: we selected popular, well-covered destinations, put editors in charge of maintaining them, published  manually-reviewed monthly updates to each title and paid the editors a royalty on sales for their troubles. Professional travel writers unsurprisingly steered well clear, but there were enough enthusiastic amateurs on Wikitravel that recruiting for the first few titles was not a problem.

On February 1, 2008, we launched Wikitravel Chicago (by Peter Fitzgerald and Marc “Gorilla Jones” Heiden) and Wikitravel Singapore (by myself) with a flurry of publicity, with coverage in Boing Boing, Gadling, and a good many more travel and tech sites.  Sales spiked nicely in the first few days, but very soon tapered off into pathetic volumes that were far less than even our most pessimistic estimates.  What had gone wrong?

Lesson #3: Validate your sales projections before you launch. >>

It seems inconceivable to me today, sufficiently so that I’m rather embarrassed to type this, but we hadn’t actually tested, at all, our conversion path with real, live customers.  We had simply blithely assumed that X% of visitors to Wikitravel pages with ads would click on to the Wikitravel Press site, and that Y% of those would go on to buy the book.  Guess what?  People browsing Wikitravel were, by and large, not interested in buying it as books; and of those that did make it to the Press and clicked on the “buy” links, another large percentage were turned off by having to create new accounts on Lulu, type in credit card details and addresses, and then pay hefty shipping fees, especially if outside the US. Doing a quiet public beta before launch would have alerted us to this at least half a year earlier.

Infancy

So there we were, with a gut-shot business plan bleeding all over the floor, and we had to do something fast to increase our distribution.  I dabbled a bit with Google AdWords and other forms of online advertising, but the brutal maths of the publishing industry made buying readers impossible: with sensible keywords costing at least $0.50 a click and an average profit margin of just $5-7 per book, we would have needed a conversion rate of nearly 10% just to break even, clearly an impossibility.

Distributing to conventional bookstores was also out of the question,  We did not have the money, warehouse space, sales network and more to start doing large print runs, hawking them to book stores, dealing with returns, etc, and even if we had, this would have obliterated our primary competitive advantage of speed.

The one avenue open to us was distributing to online bookstores, and the thousand-pound gorilla both then as now is Amazon.  Lulu had an embryonic Amazon distribution option, but not only would it have sliced our already meager profit margins in half, using it would have required new ISBNs for every edition.  And since every online book shop on the planet uses ISBNs to uniquely identify books, all reviews, sales ranking etc tied to Wikitravel Singapore, February 2008 would be lost the instant it was pulled off the virtual shelf and replaced by Wikitravel Singapore, March 2008, so this was simply not an option.  (Not to mention that, in low volumes, each ISBN costs $27.50 a pop.)  We looked briefly into selling Wikitravel as a magazine, with an ISSN instead, but the bureaucracy for getting those was even more fearsome and, again, for every bookseller on the planet, a magazine is a completely different beast to a book and would not show up in searches for the other. Was our revolution in the making about to be scuppered by a standard drafted in 1970?

Lesson #4: There are often practical workarounds for theoretical impossibilities. >>

But we found a way.  Amazon had recently launched its own consumer-facing print on demand site CreateSpace, which is tightly integrated to the Amazon bookstore, including key features like free shipping, same-day printing and, crucially for us, its own pool of pre-allocated ISBNs that could be retained through updates of the book.   In theory, you’re supposed to change the ISBN for every “substantial change of text“, but CreateSpace did not enforce this and we were more than happy to leap through the loophole.

So we shifted the entire operation to Amazon, which entitled, among other things, resizing the book’s layout, templates, covers etc to accommodate Amazon’s different page size.  And whereas Lulu had a fairly hands-off approach and a rudimentary API that could be automated to a fair extent, Amazon offered only two choices.  You could go with CreateSpace, designed for technically clueless wannabe writers and thus only drivable through an infuriatingly slow web interface, coupled with a manual validation process where every single page of every single edition was scrutinized by some half-starved third-world peon and, more often than not, summarily rejected for infractions like the cover saying “Singapore – Wikitravel” when the book title was “Wikitravel Singapore”.  Alas, the only other option was BookSurge, designed for “real” publishers bulk uploading PDFs of old books that already had previously assigned ISBNs, and hence entirely unamenable to our reuse-ISBN-for-next-edition dodge.

But we gritted our teeth and soldiered on with CreateSpace, and Wikitravel Press books went live on Amazon in November 2008.  Sales perked up immediately, and it was time to start expanding.

Stumbling forward

With the new foundation laid, there were two basic ways to expand: we could distribute to a larger audience, or we could produce more titles.

Once up on Amazon USA, the obvious next place to distribute was Amazon’s other markets: Canada, UK, Germany, Japan, etc.  However, publishing remains intricately tied up in geography, and endless rounds of discussion with Amazon Europe produced no results — at the time, the only print-on-demand service on offer in Europe was BookSurge, and that didn’t play nice with our titles.  (This has since changed.)  And while CreateSpace offers an “Expanded Distribution” program that, in theory, allows sales through Barnes & Noble and online retailers, library sales programs etc, there’s no real way to promote your books on those sites.  In practice, enabling it meant only that random online bookstores you’ve never heard of picked them up, algorithmically assigning insane prices in the vain hope that some lunatic would buy them.  (Case in point: this listing for our Paris guide,  which not only hawks a no-longer-existent product, but wants $216 for it.)

So we were stuck in our little Amazon bubble, and the only way forward was to produce more titles, which meant finding more editors to create and maintain them.  Alas, our process required a trifecta of uncommon traits: a mastery of Wiki markup, a willingness to work unpaid for a long period to initially prep the book for publication, and the tolerance to deal with unpredictable royalties once the book did hit the virtual shelves.  There were no realistic technical solutions to the first, with MediaWiki WYSIWYG remaining a pipe dream despite years of effort by the Foundation, and we were unable to pay advances because we could not accurately forecast book sales.  In the end, only nine titles made it all the way through, with quite a few left lying on the cutting table in varying states of completion.

Lesson #5:  Scaling technology is hard, but scaling people may be impossible. >>

Unable to scale people, we turned to scaling technology instead: instead of manual editing, why not automate the whole process instead?  The feeble jaws of our engine were not up to the task of digesting the whole of Wikitravel, but at Wikimania 2008 in Cairo I had been introduced to German brainiacs PediaPress, whose fearsome mwlib parser beat the pants off ours and could eat the entirety of Wikipedia for lunch.  They produced an awesome demo of a Wikitravel book, and next year I flew down to the Frankfurt Book Fair, where we shared a stand, drank beer and dreamed big.

But that dream stayed a dream, because there were two ways to make this happen, and both were blocked by limitations outside out control.

  1. We could have generated guides completely automatically and sold them via conventional channels like Amazon.  However, since CreateSpace could not be automated, there would have been an absolutely ludicrous amount of manual grunt work involved in creating and maintaining the guides; and since Wikitravel content was of uneven quality, selling books compiled with no human oversight at all would have risked a major backlash.
  2. Alternatively, we could have taken the approach that PediaPress does on Wikipedia and allowed users to build their own custom guides, but this would have required installing a custom extension onto Wikitravel.    Alas, the site was and remains fully under the control of Internet Brands, who were exceedingly reluctant to do even basic maintenance, much less install experimental extensions to help someone else’s bottom line.

Paralysis

So there we were, stuck in limbo: technically cashflow-positive thanks to our ultra-lean cost structure, but nowhere near profitable enough to pay me a living wage, much less pay dividends.

Lesson #6: A business that is not growing and not paying your rent is not a business. >>

It was surprisingly tempting to just leave it be and pretend that all was good, and in retrospect I wonder how many times I answered the usual “so how’s the business doing?” question with “Fine, it’ll make a profit this year!”.  But even through this haze of self-delusion it was starting to sink in that there was essentially no realistic prospect of growth in our current line of business, and that printed books were a dead end.

This left precisely one option: pivot away from printed books into a digital form.  Back when we started out, both e-books and apps were impractical boondoggles, with a limited range available on clunky devices if you were a member of the technological priest-elite capable of operating a Palm V or Sony Librie.  But in late 2007 both Apple’s iPhone and Amazon’s Kindle came out, bringing e-books and apps to the masses and setting off a gold rush of selling digital content.   Why not join them?

Because we could not.  Wikitravel Press’s contract with Internet Brands was only for printed products, not digital products.  We’d asked for digital rights originally, but had to give way, and our new attempts to add them to the contract were tersely rebuffed.  Since Wikitravel content is open to all, we could have tried our luck without the brand or the links from the website, but then there would have been little to differentiate us from anybody else repackaging it, and we’d probably be getting our books pulled from the Kindle Store on as just another “private label rights” publisher right about now.

Death

By 2009, the writing was on the wall and we started looking for a way out.  Evan already had a hit on his hands with identi.ca/StatusNet, and towards the end of the year I received an offer from Lonely Planet — not to acquire the company, but to bring me on board a revolutionary publishing project of their own.   I jumped at the chance, resigned my managerial positions (but hedged my bets by keeping a minority stake) and passed the poisoned chalice over to superstar editor/author Peter Fitzgerald of Chicago and Washington DC fame.  He knew full well that the company’s prospects were dim, but hadn’t had all enthusiasm and hope ground out of him quite so thoroughly yet.

Lesson #7: When it’s time to let go, let go.

In hindsight, we should have told him “no” and killed the company then and there.  The ensuing two years of slow decline were a slow but constant drain on time and money for all us, with little upside; sure, a few more editors got to see their books in print, but only see them fizzle and get pulled off the shelves shortly thereafter.  The issue was finally forced by the Internet Brands contract coming up for renewal, which we obviously elected not to do, and the company shuttered its virtual doors on December 31, 2011.

Epitaph

In retrospect, Wikitravel Press was the Minidisc of its time.  In the same way that Sony’s Minidisc was revolutionary compared to cassettes, it was a revolutionary way to do printed books, but both forms of physical media were swiftly obsoleted by the far greater revolution of digital technology: MP3 players for music, phones and tablets for books.

And the one thing that annoys me to this day is that, from day one, we knew this; we just assumed that we’d be able to get the business up and running through print books, and then expand the empire into digital once that market came into being.

On the upside, while we did not come up with the Travel Guide of the Future, neither has anybody else yet, and the trusty old printed guidebook still remains the format to beat.  Got a good idea?  Drop me a line, and maybe we can give it another shot together.

This is a followup to Wikimedia confirms creation of travel wiki, sues Internet Brands to end legal threats against volunteers, so please read that first if you haven’t already.

There’s been plenty of analysis of the Wikimedia Foundation’s countersuit against Internet Brands, but little of the original lawsuit by Internet Brands against its volunteers, mostly because it took a few days until a copy was published.  Here’s a fast food themed attempt to fill that gap, with extra pickles and ketchup.

Disclaimer: I’m not a lawyer, and I don’t even play one on the Internet, so take what you’re about to read with a fistful of french fries.  But if you can punch any holes in my amateur logic, I’m all ears.

So.  The four counts made by Internet Brands against Wikitravel users Ryan “Wrh2″ Holliday and James “Jmh649″ Heilman are:

  1. Common Law Trademark Infringement
  2. Federal Unfair Competition, False Designation of Origin and Trade Name Infringement (aka Lanham Act)
  3. Unfair competition
  4. Civil conspiracy

And the single most curious statement in a very curious lawsuit is:

49. Defendants are offering Administrators, contributors and other users a competitive website by trading on Internet Brands’ Wikitravel Trademark.

Well, no, they aren’t: there is no competing website yet.  In other words, Internet Brands is not suing because somebody is actually competing against them with some falsely labeled product, but merely because they think they will.  To put that in perspective, imagine McDonald’s having an effective monopoly on selling hamburgers in a town, and then Burger King announces that they’re considering opening an outlet that will also sell hamburgers.   How far would a lawsuit against them made on that basis alone fly?

It gets even sillier: the lawsuit is not even against the putative future competing entity (Wikimedia), but against two volunteers of the existing site, who are not employees of either.  To continue our burgerrific analogy, imagine two customers of McDonald’s publicly announcing that they’d eat hamburgers at Burger King if one opened up, and then getting sued for it.  Seriously?

What’s more, since Holliday and Heilman are both unpaid volunteers, the applicability of any of the charges is seriously questionable.  For example, Lanham Act Section 43(a) requires that the trademark be used “in commerce“, but what commerce has taken place?  For unfair competition, Internet Brands alleges that they “have engaged, and continue to engage, in wrongful business conduct“, but what business are they talking about?  And while every charge ends in the boilerplate claim that “Defendants have been unjustly enriched“, I entirely fail to see how Holliday and Heilman have been “enriched” in any way.  Quite the contrary, it’s the work of unpaid volunteers like them that has been enriching Internet Brands in the past five years.

But those three arguments actually unnecessarily dignify the charges, since you could come away with the misleading impression that they would have some merit once the competing website is up and running.  IB’s argument against Heilman seems to hinge on this claim:

22. Heilman announced that the “new” site, which would combine the Wikitravel Website through a straw-man transaction with Wikivoyage.org (the “Wikivoyage Website”) into a Wikimedia Foundation website that would be called “Wiki Travel Guide” (the “Infringing Website”).

Nope.  As clearly stated in the proposal, the final name of the site remains undecided, although it seems likely to launch as travel.wikimedia.org.  The working name “Wiki Travel Guide” (as in, a travel guide that’s a wiki) was used for a few days, but it was dropped on April 24 in favor of the generic “Travel Guide”, four months before the end of the discussion period on August 23.

Also, given that Wikivoyage e.V. has been an independent German registered association since 2006, characterizing it as a “straw-man” for Heilman and Holliday seems both ludicrous and potentially defamatory.

Holliday’s original sin, on the other hand, was allegedly this:

30. Specifically, Holliday’s email contained the Subject Line, “Important information about Wikitravel” and its body stated, “This email is being sent to you on behalf of the Wikitravel administrators since you have put some real time and effort into working on Wikitravel.  We wanted to make sure that you are up to date and in the loop regardling big changes in the community that will affect the future of your work!  As you may already have heard, Wikitravel’s community is looking to migrate to the Wikimedia Foundation.”

31. Holliday and Heilman clearly intended to confuse Wikitravel Website participants into thinking the Wikitravel Website is migrating to Wikimedia, in order to gain, through improper and illegal means, all the traffic and content creators currently contributing to Wikitravel.

Or in short, on Planet IB, the terms “Wikitravel”, “Wikitravel administrators” and “Wikitravel’s community” are all to be interpreted to be referring to web host Internet Brands alone, as opposed to the users and the content that make up the site.  This is nonsensical, especially given that the users “intended to [be] confused” were exclusively those long-term, prolific Wikitravel contributors most familiar with the site.  Internet Brands themselves is well aware of the distinction (see eg. this comment where they distinguish admins and community, and this for host vs community), but burgerizing it makes it even clearer:

This email is being sent to you on behalf of the McDonald’s fan club since you have put some real time and effort into eating at McDonald’s.  We wanted to make sure that you are up to date and in the loop regarding big changes in the fan community that will affect the future of your meals!  As you may already have heard, McDonald’s diners are looking to go eat at Burger King.

Would you read that as saying that the McDonald’s Corporation is is moving over to Burger King?  I don’t think so.

And there’s more:

  1. At the same time that they’re suing for trademark infringement, Internet Brands themselves continues to describe Wikitravel as “Wikipedia for travel.”  Needless to say, Wikipedia is a trademark of the Wikimedia Foundation.  Oops!
  2. The last action attributed to the defendants occurred on August 18, 2012, but Internet Brands only applied to register “Wikitravel” as a trademark on August 22, 2012.  (Deep links to the USPTO aren’t allowed, but try a trademark search on TESS.)  Now, unregistered trademarks can still be trademarks, but it’s still interesting that IB apparently didn’t care about it until this year!

Internet Brands’ final claim is that there is the “civil conspiracy” against them and that the defendants have engaged in all sorts of dastardly “unlawful acts”.  In particular:

32. Holliday not only violated trademark laws, he violated the administrative access given to him by Internet Brands by improperly using personal information stored on Internet Brands’ servers about users and writing to them by name, in an attempt to bolster the appearance of a direct communication from the owners of the Wikitravel Website.

Where to begin?  First, Internet Brands did not “give” Holliday administrator access; he has been an administrator since June 2005, before Internet Brands bought the site.  Second, administrative access is not necessary to mail users, as anybody who is logged in can do it: here’s a form for sending mail to everybody’s favorite Internet Brands apologist, Paul “IBobi” O’Brien.   (Be nice, mmkay?)   And third, “bolster the appearance” and “writing to them by name” are just nonsensical, since MediaWiki form e-mails clearly show the name of the sender and does not expose any of the receiver’s personal information.

Last and least, my favorite claim of all:

26. On July 12, 2012, Heilman met at the Wikimania convention with a number of Administrators and others to reach a further meeting of the minds as to the unlawful acts to be undertaken.

Guess who else was in on this conspiratorial “meeting of the minds”?  Chuck Hoover, CMO of Internet Brands, who was even courteous enough to announce his visit publicly!

And there is one interesting thing that Internet Brands is not doing: at no point do they dispute the validity of the Creative Commons license, which indicates that even their legal team thinks they have no chance of stopping the content itself from being forked.  They are clutching desperately at straws to try to get the community to stop leaving, but the lawsuit has more holes than a chip frying basket, and is likely to get crumpled up and thrown away like a used burger wrapper as soon as a judge sees it.

Final disclaimer: McDonald’s is a trademark of McDonalds Corp. Burger King is a trademark of Burger King Inc.  Any references to either in this post are illustrative works of fiction.

The Wikimedia Foundation, the non-profit organization behind Wikipedia, has today officially announced that they will proceed with the creation of a Wikimedia travel guide.  This follows the overwhelming support expressed during the public comment period, with 542 in favor versus 152 against, and the community behind the original travel wiki, Wikitravel, has already regrouped at Wikivoyage in preparation for joining the Wikimedia project.

In my previous post, I had discussed the limited options available to Wikitravel’s site owner Internet Brands, and optimistically predicted that they would not resort to legal action.  Unfortunately, I have been proved wrong, as Internet Brands did resort to the courts — but instead of picking on someone their own size, they sued two Wikitravel volunteers active in the fork effort, James “Jmh649″ Heilman and Ryan “Wrh2″ Holliday, alleging a “civil conspiracy” (I kid you not!) against them and threatening to expand the scope of the suit to cover “additional co-conspirators”.  Indeed, a number of Wikitravel users have received vague but threatening notices from Internet Brands’ legal department, alleging that their action may be “in violation of numerous federal and state laws”.

In the opinion of the Wikimedia Foundation, all this is an “obvious attempt to intimidate” people involved in the fork, and to their infinite credit they’re not taking it lying down: they have on this same day filed a suit against Internet Brands in San Francisco, “seeking a judicial declaration that Internet Brands has no lawful right to impede, disrupt or block the creation of a new travel oriented, Wikimedia Foundation-owned website in response to the request of Wikimedia community volunteers”.  As the 11-page suit clearly lays out, Internet Brands’ position is not merely baseless but preposterous, and I’m very much looking forward to them getting slapped down.

Meanwhile, over at Wikitravel, Internet Brands has been busily reverting out discussion about the fork, protecting pages so they cannot be edited, blocking users who dare mention the fork, and summarily removing administrator privileges from dissenting users, which unsurprisingly has done them no favors with the community.  They’ve already once temporarily shut down all editing on the site to all users who are not “bureaucrauts” (sic!), and it seems a matter of time until my prediction comes true and they lock it down permanently.

Update: By popular demand, here’s a diagram that attempts to explain how Wikitravel, Wikivoyage and the as-to-be-unnamed Wikimedia Travel project relate to each other:The end goal is thus that the content and communities from both Wikitravel and Wikivoyage will become Wikimedia Travel, strong and vibrant under a host that shares the ethos and has the technical capability and other resources to maintain it.   As an inevitable side effect, Wikitravel the site will die a slow and lingering death.

 

 

By buying a travel guidebook publisher solely to bolster its local search content, Google risks both straddling itself with an unprofitable albatross and missing out on a way to differentiate itself from its rivals.

Google’s recent acquisition of Frommer’s has given rise to much comment about the “real” intentions of the Big G and what this means for other travel publishers.  While it’s less entertaining than some of the theories floating around, for time being I’m willing to accept their stated rationale at face value: just another stepping stone to “provide a review for every relevant place in the world“, and thus a tactical move to bolster local coverage for the ailing Google+.

There are, however, two fundamental problems with the purchase and this goal that do not seem to have garnered much attention.

The first is the problem of content creation.  Frommer’s claims “4,500 destinations, 50,000 images and 300,000 events“, but they leave unsaid the source of every one of those bits of data: their own printed guidebooks.  Google thus has an unpalatable array of choices:

  1. Keep producing printed guidebooks and digitizing the incoming content as usual.  This is clearly Google’s starting point, as they will be retaining Frommer’s print staff, but it’s also almost certainly a money-losing proposition: given the fire sale price of barely over 1x revenue, there’s no way the books are making money.  With the overall travel guidebook market declining by 10% year and the new owner focused on entirely different things, a turnaround seems fanciful.  Google will thus be looking to jettison them as soon as it can, which leads us to the next option:
  2. Stop print production, but keep the authors and editors around producing travel guides in digital form.  Alas, this would only exacerbate the losses, as e-book and app sales make up only a small fraction of printed book sales and the actual printing is only a fraction of the cost of book production. This option seems thus very unlikely, and my money is thus on:
  3. Stop producing guidebooks in any shape or form, dispense with narrative content entirely and focus purely on points of interest.  (This is what Zagat has always done.)  It also means throwing any direct revenue model out the window, although it does keep their B2B arm Frommer’s Unlimited afloat.  It will be interesting to see how much money Google is willing to sink into paying authors and editors to update those reviews, but it’s quite conceivable that the answer is “none”, in which case we end up at the final option:
  4. Fire all editorial staff and let the content decay.  If the purchase is indeed purely a tactical ploy to temporarily beef up their reviews while they wait for Google+ to reach critical mass and start to create fresh, user-generated content à la Zagat, this actually makes perfect sense.  Google doesn’t even need authors for the other half of their usual job, verifying practicalities details (addresses, telephones, etc), as Google has already mastered that process through other means.

If Google goes with the 3rd or 4th option, and I have hard time seeing them not do so, their second problem (or, rather, missed opportunity) will be the lack of content curation.  By treating guidebooks as no more than a database in print form, turning them into a homogenous soup of atomic points of interest, Google is effectively conceding to compete on a level playing field with local search rivals like Facebook and Foursquare.   All three now assume that users are searching for individual points, easily filtered on individual axes: “best five-star hotel in New York by user ratings”, “cheap Japanese restaurant in Melbourne CBD open for lunch” etc.

But a guidebook is not the same as a phone book: it’s supposed to contain a careful selection of the best places to go, arranged in a sensible way.  Neither Facebook nor Foursquare can offer a sensible answer to real travel questions like “Funkiest bars in Brussels”, “Romantic day in Paris”, “Three-day hike in New Zealand”, whereas any guidebook about those places that is worth its salt can.  As an engineering-driven company, Google has given things like this little thought simply because they are hard problems for artificial intelligence to solve — but using Frommer’s team of authors, it would be possible to augment the automated results produced by things like the Knowledge Graph to field hand-curated content as well.

If Google goes ahead and does this, then the Guidebook of the Future will be that much closer to reality and travel publishers will have a real problem on their hands.  But I doubt it, and that’s why those publishers are breathing a sigh of temporary relief: one competitor less means a bigger slice of the shrinking pie for the rest.

On July 11, 2012, the Wikimedia Foundation of Wikipedia fame made a decision that has been a long time coming: they decided to support hosting a new wiki devoted to travel, populated with Wikitravel content and, most importantly, the community that built Wikitravel.  It’s not a done deal yet, as the decision has to be confirmed by public discussion, but as it’s looking pretty good so far; and if it comes true, this second shot at success is almost certain to result in the new gold standard for user-written travel guides, in the same way that Wikipedia redefined encyclopedias.

Let me start by making it clear that this is a personal blog post that does not claim to represent the view of all 72,000+ Wikitravellers out there, much less the Wikimedia Foundation.  I’ve played little role in and claim no credit for making this fork (legal cloning) happen, and my present employer Lonely Planet has nothing to do with any of this.  However, as a Wikitravel user and administrator since 2004, who has done business with Wikitravel’s current owner Internet Brands and seen first hand how they operate, I’ll take a shot at answering three questions I expect to be asked: why the fork is necessary, whether the fork will succeed, and how Internet Brands will react.

First, a quick history recap.  Founded in 2003 by Evan Prodromou and Michele Ann Jenkins as a project to create a free, complete, up-to-date and reliable world-wide travel guide, Wikitravel grew at an explosive pace in its initial years and seemed on track to do to printed travel guides what Wikipedia had done to encyclopedias.  But in 2006, with ever-increasing hosting and support demands and no money coming in, the Prodromous made the decision to sell the site to website conglomerate Internet Brands (IB), best known at the time for selling used cars at CarsDirect.com.

IB made many promises at the time to respect the community, keep developing the site and tread carefully while commercializing it.  The German and Italian wings of Wikitravel didn’t believe a word it, so they rose up in revolt and started up Wikivoyage, the first fork of Wikitravel, which did successfully supplant the original for those two languages.  But the rest of us, including myself, opted to give IB a chance and see how things turned out.

Now to give Internet Brands credit where credit is due, it could have been considerably worse.  They’ve kept the lights on for the past 5 years, although overloaded or outright crashed database servers often made editing near-impossible.  They have respected the letter of the Creative Commons license, if not the spirit, as from day one they have refused to supply data dumps.   And they grudgingly abandoned some of their daftest ideas, like splitting each page into tiny chunks for search-engine optimization, after community outcry.  On a personal level, I also dealt with IB while running Wikitravel Press, and while they could be a tough negotiating partner, whatever they agreed on, they also delivered.

What they did not do, though, was develop the site in any way that did not translate directly into additional ad revenue.  The original promise to restrain themselves to “unobtrusive, targeted, well-identified ads” soon mutated into people eating spiders and monkey-punching Flash monstrosities, with plans to cram in a mid-page booking engine despite vociferous community opposition.   Once Evan & Michele were kicked off the payroll, bug reports stayed unattended for years, and neither did a single new feature come through, with the solitary exception of a CAPTCHA filter in a feeble attempt to plug the ever-increasing amount of spam.  Even the MediaWiki software running the site was, until very recently, stuck on version 1.11, five years and a full eight point releases behind Wikipedia.  Unsurprisingly, the once active community started to fade away, with all of Wikitravel’s statistics (Alexa rank, page views, new articles, edits) slowly flatlining.

By 2012, with various feeble ultimatums ignored by IB and no other way out in sight, the 40-odd admins of the site got together and decided to fork. After a short debate and a few feelers sent out in various directions, unanimous agreement was reached that jumping ship to the Wikimedia Foundation (WMF) was the way to go, with Wikivoyage also happy to join in.  Reaction on the Wikimedia side was almost as positive, and as I type this the birth of a new, truly free travel wiki appears to be only weeks away.  (Sign up here to be notified when it is!)

The natural question is thus, which of the two forks will win?  Internet Brands has triggered many a community revolt before, but the track record of those revolts is distinctly mixed.  QuattroWorld has found a stable user base but is still below AudiWorld in traffic rank; Cubits.org did not put a dent in Dave’s Garden; and the jury is still out on FlyerTalk vs MilePoint, but FlyerTalk retains a commanding lead.

Nevertheless, in Wikitravel’s case, I feel confident in predicting the answer: the new fork will win, by a mile.  Many of the reasons are clear — Wikitravel’s license allows copying all the content, nearly all editors and admins will jump ship, and the Foundation’s technical skills in running MediaWiki are second to none — but one takes some explaining.

The primary reason Wikitravel shows up so well in Google results is that it is linked from nearly every article about a place in Wikipedia.  Now, ordinary garden-variety links from Wikipedia to other sites are ignored completely by Google, because they have the magic anti-spam rel=nofollow attribute set.  However, Wikitravel is one of a very few sites that are linked through an obscure feature called “interwiki links“, which do not have that attribute set, and are thus counted in full by Google when it computes the importance of pages.  Thus, the moment those links are changed to point to the new fork — and all it will take is one edit of this page — the new site will be propelled to Google fame and Wikitravel.org will begin its inexorable descent to Internet obscurity.

The final question thus presents itself: How will Internet Brands react?  We have some clues already: as soon as they twigged on, they simultaneously pleaded that everybody return to their grandmotherly embrace, tried to spin the fork as a “self-destructive” rogue admin coup against a Nixonesque “silent supermajority”, and attempted to censor discussion on Wikitravel itself.  When these attempts unsurprisingly fell flat, the phone lines started ringing, with head honcho Bob “Passion to Mission” Brisco calling up the WMF with promises of “innovative collaboration” if only they can keep their sticky fingers in the pie.

From Wikitravel’s point of view, it would obviously be best if Internet Brands cheerfully admitted defeat and handed over the domain and trademark to the WMF, which would avoid the necessity for a messy renaming. However, having followed the (private) discussion from the sidelines for a few days now, Internet Brands insists on keeping full control of the site and minting advertising money, and all they want from the WMF is a seal of approval, paid for with a slice of the loot.  The non-profit Foundation, on the other hand, aims simply to freely share knowledge and has a long-standing aversion to advertising, so all they are able to offer is an easy way out from what will otherwise be a PR disaster.  I’d still like to hope a deal can be done, but quite frankly, the gap between these two positions does not look bridgeable at the moment.

The other extreme is that Internet Brands tries to prevent or sabotage the fork via legal action, as they did in the vBulletin vs XenForo case that’s apparently still rumbling through the courts.  I think this is even more unlikely though: all they own is the Wikitravel trademark and domain, so as long as the new (and presently undecided) name is sufficiently dissimilar, they will not have a legal leg to stand on.  Unlike the XenForo case, there are no employees jumping ship, the software is open source, and the content itself is Creative Commons licensed and can be copied at will.

The most likely option is thus status quo: IB will keep doing the only thing it can, squeezing every last drop of revenue from visitors venturing in, and probably turning up the infomercial volume to 11.  But with the community soon to turn into a ghost town, and increasing numbers of spammers and vandals dropping in to trash the place with nobody left to clean up after them, they will probably have to disable editing sooner or later, and Wikitravel.org the site will die a slow, ignominious death.

It remains to be seen if the new travel guide can succeed among a broader public: travel information online and collaborative writing have both moved on since 2003, and there are still unresolved problems with asking users to write and agree on fundamentally subjective content.  But the new Wikitravel will remain the world’s largest open travel information site for the foreseeable future, and will certainly give the closed competition a run for their money.  Wikitravel is dead, long live Wikitravel!

To register your support or opposition to the fork proposal, please head to the Request for Comment on the Wikimedia Meta site.  Translations of the RFC into other languages are particularly welcome.  

The RFC is expected to run until the end of August, with a formal decision and the launch of the new site to follow soon thereafter.  To be notified if and when the new site it goes live, please sign up at this form.  You will receive a single mail, and your e-mail address will then be thrown away.

Update: On September 5, the Wikimedia Foundation officially announced that they will proceed with the fork, and contrary to my optimistic prediction, Internet Brands is suing everyone left, right, and center.  See follow-up post.

Update 2: The new site, called Wikivoyage, was launched on January 15, 2013 and is already better than Wikitravel ever was.

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