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For most of his career the fearsome Barry Diller has been acclaimed as a brilliant visionary who invented the TV movie of the week, ran Paramount Pictures and created a fourth broadcast network when the Big Three dominated the dial. Today Diller, chairman of IAC/InterActiveCorp, controls an enviable array of Web sites with overlapping sweet spots in three markets:travel, home buying and people who still go out on dates.

So how did he get here? By having no grand vision at all. "We're just opportunistic." Ask what the Next Big Thing on the Web will be and he says, "I have no clue." As for his pile of properties:"We discovered them in the serendipitous way that things can happen."

Diller, 63, says his Internet foray is far from finished--and that investors are making a mistake by turning their backs on the Net. "I'm not finished, because I'm still curious," he says. "The revolution of the Internet is not over. There's opportunity, and if you're curious and there's opportunity, who knows what kind of trouble you can get into?"

He began his online odyssey in 1992 when he quit Fox and fell in love with his PowerBook laptop. The only thing he knew for certain, he says, was that everything was about to change. A year later he was profiled in the New Yorker--and in 8,100 words the Internet wasn't mentioned a single time. He thought interactive TV was the key, joining QVC and later acquiring Home Shopping Network.

But in 1999 he made his first big Web purchase, paying $245 million for Hotels.com. He wasn't sure why: "It was nothing but instinct." Diller had opposed the idea but was pushed into it by a minion on his staff, a strategic planner who hadn't yet hit 30 (Dara Khosrowshahi, now 36 and chief executive of Expedia, which split off from IAC last month). "We have raging discussions," Diller says, and employees have "no fear about calling their chairman an idiot. And their chairman likes to hear it because it makes him listen." Good thing:Hotels.com throws off $170 million a year in free cash, valuing it at $3 billion.

By 2002 Diller had dropped his old focus on television to begin loading up on Web sites. IAC sold off the USA Network and other cable assets to Vivendi Universal for $11 billion, holding on to a 5% Vivendi stake (which brought $3.4 billion in a sale to NBC earlier this year). Going online, IAC has acquired all or part of 19 Web sites in four years for a total of upward of $10 billion. The push started with a move to buy a 65% stake in Expedia from Microsoft for $1.5 billion.

In 2003 Diller's shopping spree picked up. In travel he bought the rest of Expedia, the rest of Hotels.com and the Hotwire discount-travel site. IAC also acquired a dating siteand, for home buyers, RealEstate.com and LendingTree.com. Still more deals came last year.

Diller made one of his boldest bets in July, when IAC paid $1.9 billion in stock to buy an also-ran search site, Ask Jeeves. All past media business was based on scarcity, but the Net is "the opposite of scarcity. It's infinite, and global search is probably going to be the entrance for most people's activity," Diller says.

IAC now focuses on the myriad ways people are moving aspects of their daily lives to the Net. "Most experiences are being transformed by the Internet," he says. "That transformation is at the heart of everything we do. We find situations that are in some form of transformation, and we've been lucky to dive into most of them before anyone noticed." The Net bubble's burst has made this all more affordable, he adds.

Sounds like a vision to us.

Diller decided late last year to break up IAC into two companies with separate stocks; shareholders approved the split, which took effect last month. One company, Expedia, owns the travel businesses, which had accounted for 60% of total IAC earnings. The other, IAC, will include the Ask portal and everything else. Diller, IAC's chief executive, controls a 7%stake in IAC and a 7% stake in Expedia.

In the early Nineties, when he quit Fox, owned by Rupert Murdoch's News Corp., Diller had tired of working as a richly paid employee and wanted to build his own empire. Worth $345 million back then, he has quadrupled his wealth to $1.4 billion today. Murdoch is up only 60% in that time, to $6.7 billion.

Now many Diller-watchers believe he is about to complete his transformation from TV titan to Web mogul by peddling off Home Shopping Network, which IAC still owns, to archrival QVC, controlled by John Malone's Liberty Media. Home Shopping could be worth $4.5 billion--a nice windfall for buying still more Web sites.

Diller won't comment on such a deal, but during a recent interview in his New York office he sprang from his chair to take a phone call--from JohnMalone. "Maybe he's making an offer," Diller teased. He believes he possesses one advantage over his old-media brethren: a genuine willingness to dive into Internet ventures while the media guys reluctantly test the waters because they feel forced to. "We are the only ones who are plying the Internet in a microbusiness fashion," Diller says. "That's either smart or stupid. Since we are doing it, I'd like to think it's smart."

Led by a British expat and a visionary crown prince, Dubai's flag carrier has grown into one of the most successful -- and despised -- airlines in the world.

By Matthew Maier, September 21, 2005
Call it a moment of uncivil aviation. Last May in Tokyo, at the airline industry's biggest annual gathering, some 500 attendees watched as the keynote discussion, featuring five top CEOs, suddenly went from boring to ballistic. Rising from his seat in the front row, Leo van Wijk, vice chairman of the Air France-KLM Group, the world's largest airline, grabbed a mike and glared at his chief adversary, sitting onstage -- nattily dressed Tim Clark, British-born president of Emirates of Dubai, the world's fastest-growing intercontinental airline.
The subject of fair-trade practices had come up, and van Wijk wanted to know how Clark, running a carrier with just $5 billion in revenue, could be spending $15 billion on 45 new Airbus A380s, the largest and most expensive passenger jets in history. "Many of us have great doubts," van Wijk began, "about how Emirates is paying for these A380s when your cash flow isn't big enough to support it. So where do you get the money?"

The insinuation was obvious to everyone in the room: The source of funds might be hidden in the deep pockets of Clark's high-profile boss, Sheikh Mohammed bin Rashid al Maktoum, the multibillionaire crown prince of Dubai, which owns the airline. Or maybe in those of the crown prince's uncle, Sheikh Ahmed, who runs Dubai's Department of Civil Aviation, runs the airport, and serves as Emirates's chairman. Either way, van Wijk was suggesting that Emirates was getting preferential treatment.

With that, Clark launched into his own tirade -- pointing out that nearly every airline represented in the room had been on the receiving end of government subsidies and perks, and that Emirates's finances could easily support the long-term leasing of new planes. As president of Emirates, Clark was accustomed to occasional professional jealousy, but this was something else. Months later, sitting in his Dubai office on a typical 104-degree summer morning, he is still fuming. "It was a bloody ambush," he says.

The tension has been building for years. Emirates launched in 1985 with just two daily flights to Pakistan; the upstart carrier quickly became profitable and has since enjoyed 17 straight years in the black. According to the financial data that Emirates discloses, the $637 million profit it earned in its most recent fiscal year -- on record sales of $4.9 billion -- ranks it as the world's second most profitable passenger airline, behind Singapore Airlines. As the flag carrier for Dubai, the second-largest of the seven sheikhdoms that make up the United Arab Emirates, the airline has quietly become one of the world's most successful, earning it very few friends among the competition. "They perceive us as the largest single threat to their existence in the last 20 or 30 years," Clark says.

DUBAI: THE NEW GLOBAL HUB
More than half of the world's population lives within an eight-hour flight, allowing Emirates to connect Europe with fast-growing markets in Africa, Asia, and the Middle East.

EUROPE & THE AMERICAS
(France, Germany, Greece, Italy, Russia, U.K., U.S.)
22 DESTINATIONS
REVENUE: $1.8B
MIDDLE EAST
(Iran, Jordan, Kuwait, Lebanon, Oman, Saudi Arabia, Syria)
13 DESTINATIONS
REVENUE: $800.7M
AFRICA
(Kenya, Libya, Morocco, Nigeria, South Africa, Uganda)
11 DESTINATIONS
REVENUE: $458.2M
EAST ASIA & AUSTRALIA
(Australia, China, Indonesia, Japan, New Zealand, Sigapore, South Korea, Thailand)
17 DESTINATIONS
REVENUE: $1.4B
WEST ASIA & INDIA
(Bangladesh, India, Pakistan, Sri Lanka)
15 DESTINATIONS
REVENUE: $473.6M
Here's the biggest reason. Residing within 4,000 miles of Dubai -- roughly an eight-hour flight on today's modern jetliners -- are 3.5 billion people, more than half of the world's population. Before any other airline discovered the opportunity, Emirates capitalized on its location and created a hub to connect all these people. Much the way Chicago's O'Hare is a nexus for millions of travelers making their way across the United States, Dubai International Airport serves as the nerve center for a staggeringly fast-growing legion of globe-trotters. For two decades Emirates has grown sales at a clip of at least 20 percent a year, and it's doubled in size, on average, every four years. Construction has already begun on a new airport in Dubai that will be the world's largest when completed in 2020.

Which begins to explain why Clark, the affable Brit who helped build Emirates from a ragtag operation in the 1980s into a virtual empire, is the guy his competitors love to hate. Clark is busy scouting cities for all his new planes to fly into, and with a crown prince and a sheikh at his side, he terrifies van Wijk and others who have long dominated the world's busiest air routes. "The main reason we have so many detractors," Clark says, "is because they realize the game is up." GOes on search in Business 2.0 under Rise of the Emirates Empire

These days, Silicon Valley is behaving like an unreconstructed alcoholic. From the Sand Hill Road offices of top venture capital firms to the office parks where consumer Internet startups are again in vogue, investors are pulling out their wallets when they hear the right combination of buzzwords: blogs, social networking, user-generated content.
Some might be tempted to shake their heads. Aren’t these the same people who, a decade ago, went gaga over PointCast’s push technology, which delivered online news and information to your computer desktop? Today they can’t stop talking about RSS feeds -- which do exactly the same thing. Back then there was GeoCities. Today there’s MySpace. Both built businesses out of hosting personal webpages, and both were acquired for exorbitant sums by large companies (Yahoo (YHOO) and News Corp. (NWS), respectively). In the 1990s, Net2Phone was the hot company in Internet-based telephony. Today it’s Skype. Online grocer Webvan was shuttered in 2000, but don’t tell that to online grocer FreshDirect, whose chairman (the former CEO of Priceline.com) has said he’s exploring financing options (read: mulling an IPO). “People are rediscovering a lot of old ideas,” says Bill Burnham, a VC and former Wall Street Internet analyst.

To distance themselves from their ignominious predecessors, entrepreneurs insist that things are different this time. And in some ways, they’re right: Many dotcom-era business models may simply have been ahead of their time. Seven years ago a third of U.S. households were on the Internet. Today almost four out of five are online, more than half with broadband connections. The bigger market makes it easier for new businesses to gain traction, while services such as music and video downloads are more appealing to broadband users. It’s also cheaper now to set up an online business. Web server hardware that cost $25,000 in 1995 goes for $1,000 today. The price of a terabyte of storage has fallen from $1 million to about $30,000. Back then it could easily take $20 million to see if a wacky idea would work. Now the same business can get off the ground for $20,000.

DOTCOM-ERA IDEAS FINALLY PAY OFF.
WHAT IT MEANS: Timing matters. Many 1990s-vintage business models now seem ready for prime time.
WHAT IT MEANS FOR YOU: Opportunities abound, despite the déjà vu.
HOW TO PREPARE: Exploit today's realities. Tech gear, software, and broadband are cheaper than ever.

Startups also have a better idea of how to succeed. In the late 1990s, attracting eyeballs was the name of the game. Trouble was, nobody knew how to make money from eyeballs once they had them. Then Google found a way to convert eyeballs into cash by charging only for ads that people click on. Similarly, MySpace may seem similar to GeoCities, but GeoCities never had MySpace’s sophisticated -- and viral -- social networking. “The big difference between the late 1990s and today is we didn’t have proven business models,” notes Allen Morgan, a venture capitalist at Mayfield.

For today’s startups, the biggest worry is the survivors of yesteryear: Amazon (AMZN), eBay (EBAY), Google (GOOG), Microsoft (MSFT), and Yahoo. “How is the company going to survive on the dance floor when the other dancers are elephants?” Morgan asks. Which, as business problems go, is also very 1990s.

Puppet's Got a Brand-New Bag
Online ticket seller Fandango is finding that its customers' opinions are more valuable than their money.

By Geoff Keighley, September 21, 2005
When marketers from MGM (MGG) called in 2002, asking for a demographic breakdown of people who'd bought tickets to war movies, Art Levitt, CEO of online ticket seller Fandango, was surprised. "Back then I didn't think we'd be getting into market research," he says.
But with a database containing the age, location, and purchase habits of each user who registers to buy advance movie tickets, Fandango was able to help MGM hone its marketing campaign for the movie Windtalkers. And similar requests gave Levitt a revelation: Rather than simply selling tickets, Fandango might get more value from the 1.7 million of its registered users who have opted to receive e-mail by turning them into the ultimate focus group for movie marketers.

Based in Santa Monica, Calif., Fandango runs exclusive online ticketing for 13,000 screens and sells about 2 percent of U.S. movie tickets to the 5 million users who visit the site each month. But lately Levitt has been pitching the company as an information link between filmmakers and moviegoers. So far, studios are paying for custom research and regular reports about Fandango's user base. Levitt says nonticketing initiatives (including advertising) already account for almost 50 percent of Fandango's revenue. (The privately held company's annual sales are estimated to be about $40 million.) "Rob Moore [a former partner at Revolution Studios] called up and said, 'Give me a list of every kids' movie for which you've ever sold a ticket,'" Levitt recalls. A few days later, Moore returned the list with certain titles highlighted. Fandango then sent the trailer for one of Revolution's family-oriented movies to users who had seen those films.

Movie research -- a business worth an estimated $200 million a year -- has been dominated by companies like Nielsen Entertainment NRG, which specializes in offline activities such as exit polling. But Fandango offers something unique: the buying histories of millions of moviegoers. Last summer, for instance, Fandango was hired to ask people who had bought tickets to Bewitched if they remembered Nicole Kidman swiping a Visa Signature card. NRG and others also perform surveys of product placement recall. But those companies rely on subjects to verify that they saw a particular movie. "If you put $40 on your credit card to go see the film, I can be a lot more confident you really saw it," says Jonathan Helfgot, VP for research at 20th Century Fox.

Still, Levitt says Fandango is just getting started in research, and he claims no ambition to dethrone NRG. That's wise, since Fandango's data does not represent all American moviegoers. (Kids, for instance, don't have credit cards to buy online.) And soon rival Movietickets.com may enter the fray: In April, Hollywood Media (Movietickets.com's owner) announced a deal with NRG to track sales of Broadway tickets.

Of course, Levitt is accustomed to exploiting unforeseen opportunities: In 1984 he sold a couch to Disney (DIS) CEO Michael Eisner, who hired him on the spot as a personal assistant. "I want us to become part of the life cycle of a movie," Levitt says. "I want to test the concept, test the trailer, sell advance tickets, and then see if you'd consider buying the DVD." With the movie business down 8 percent this year, he also has to hope Hollywood makes more movies that consumers actually want to see.

Less is more. But sometimes -- in the fast-moving fast-food hamburger business, for instance -- more is more. This is the story of how national chain Hardee's went from the verge of extinction to profitability, even sexiness, by understanding when to offer less and when to provide more.
When Andy Puzder took the helm of publicly traded CKE Restaurants in the fall of 2000, the company was on the brink of ruin. Of the three fast-food chains owned by CKE -- Hardee's, Carl's Jr., and La Salsa -- it was Hardee's that was causing the trouble. Seven straight years of declining sales. Not a penny of profit since 1990. Market share cut nearly in half since 1995. As a result, CKE reported a $30 million loss that year -- its first since 1993. In the spring of 2000, before Puzder arrived, CKE shares had shed more than 90 percent of their peak value of $42 and were trading at just $3.50. Barely enough even to buy one Hardee's sandwich.

A rock 'n' roll guitarist by passion and corporate lawyer by training, Puzder, now 55, knew little about the fast-food business when he met CKE founder Carl Karcher in 1990. (At 6 feet and 185 pounds, Puzder doesn't look very familiar with the food either.) He had time to learn, though, as Karcher's personal attorney and then CKE's general counsel, before assuming the CEO post. Among his first acts was shuttering 430 of the 923 Hardee's owned by CKE. (Another 1,737 restaurants were franchised or licensed.) But he still couldn't contain the damage.


Poring over documents in his corner office wasn't helping. So he hit the road, spending the next 24 months dropping in on one Hardee's after another across the Southeast and the Midwest, 300 in all. What he found alarmed him: poor food, lousy service, unclean restaurants. "Every time I went into a restaurant, people were cleaning the windows because it's the easiest thing to clean," he says. Sometimes, when Puzder masqueraded as a customer, he encountered cashiers who stared back at him blankly without offering a greeting or a single order suggestion. "Turning around the service and cleanliness was step one," Puzder recalls.

The Epiphany of Simplicity
To get there, puzder torpedoed a cumbersome company manual and replaced it with an easy-to-digest handbook containing just 12 points. Next he implemented table service (customers still order at the counter, but meals are delivered to their seats) and wrote talking points for Hardee's cashiers, which he taped to the registers. Finally, he remodeled the restaurants, ditching the clownish brown-and-orange interiors for brighter white tiles to create a cleaner, more modern atmosphere. Yet all these changes failed to move the needle.

CEO Puzder's Recipe for Success
-Face the heat: Get into the kitchen!
-Cut away money-losing operations.
-Strain out excess products.
-Make your core product a contrarian one.
-Charge a premium, and serve.




Puzder was still groping for ideas in July 2001, when he had an epiphany while manning a Carl's Jr. to commemorate that chain's birthday. (CKE prides itself on having its top managers spend key company holidays as burger flippers; in fact, Puzder had spent a day the previous month working in a Hardee's.) Suddenly it struck him with the zest of a double-pickle why Carl's was so successful while Hardee's was sucking slaw: Carl's menu was a model of simplicity. Since only burgers and chicken sandwiches are offered, the food is quickly and efficiently prepared. By contrast, Hardee's 50-item menu, offering everything from hot dogs to fried chicken and fish sandwiches, was a mess of complexity. Customers had to wade through too many choices, food preparers continually struggled to catch up with orders, and stocking all that stuff was a supply-chain nightmare. It was clear why Hardee's struggled to produce average same-store sales of $763,000 while Carl's Jr. averaged $1.1 million. "I realized," Puzder says, "that the Hardee's model isn't a good business plan."

Going Big
Hardee's menu had to be streamlined. Puzder called on Los Angeles-based advertising agency Mendelsohn/Zien to help him determine which foods to keep and which to abandon. The firm, which has two decades of experience with the fast-food industry, had been instrumental in revamping Carl's Jr. just two years earlier with the launch of a premium-priced sandwich dubbed the Six Dollar Burger. Mendelsohn/Zien spent the next seven months conducting focus groups, trying to find a hole in the market for Hardee's to fill.

"In all the market research that I've done, people always say, 'I wish I could get a burger like the ones I get at T.G.I. Friday's,'" says Jordin Mendelsohn, the agency's executive creative director, referring to Friday's unusual chargrilled burgers (one has a sauce made with Jack Daniel's whiskey). "But you can't have the same voice as Wendy's (WEN), McDonald's (MCD), and Burger King. You have to have a unique selling position and marketing niche, or you'll fail."

Mendelsohn's first proposal was crazy. He urged Puzder to tear down his existing restaurants, delete breakfast from the menu, begin serving huge third- and half-pound burgers, and, oh, change the name of his chain to Thickburger. "I liked the idea," Puzder recalls, "except the parts where we tear down the buildings, take out breakfast, and change our name. But I thought the Thickburger would be a great focus for us."

So while the competition, especially McDonald's, emphasized its new love and respect for healthy salads and cheap "dollar meals," Hardee's would go 180 degrees into the realm of high fat and high price. The effort culminated in the April 2003 debut of the Thickburger line: nine grease-dripping, 100 percent Angus beef burgers, each packing more meat, more mayo, more butter, more bun -- heck, more of everything -- than any single-patty sandwich offered by Hardee's competitors. Beginning at a third of a pound, the burgers max out at the Monster Thickburger, a two-thirds-pound, 1,420-calorie sandwich with twice the Food and Drug Administration's recommended daily allowance of fat. It costs $5.50. (McDonald's "high-end" burger is $2.45.)

Hardee's immediately drew scorn. The Center for Science in the Public Interest called the burgers "food porn." But Puzder dismisses such criticism."We're not here to decide what customers should eat," he reasons. "We're here to decide what they want to eat." And eat, they do: The month Thickburgers debuted, Hardee's same-store sales spiked 6 percent. They've remained positive in 23 of the past 27 months. Even once-embittered customers like Tom Trimble, a professional contractor and fast-food gourmand, are returning in droves. "Unless you want to go home and cook for yourself, you can't get a better burger," he says, after downing a Bacon Cheese Thickburger and curly fries at a Hardee's in Overland Park, Kan. A Hardee's patron since his teens, Trimble, now 46, quit the chain four years ago. "All of a sudden the food was different. The burgers were inedible." It was the siren song of the Thickburger that drew Trimble back. Now he's a twice-a-week Hardee's devotee again.

The Thickburger is more expensive to produce than other menu items, but Hardee's makes up for it in price. Before the Thickburger arrived, Hardee's average sandwich cost $2. Now it's $4. That helped Hardee's fatten its restaurant-level margin to 14 percent in 2005 -- twice what it was in 2000 -- and turn a $5 million profit, its first in 14 years.

All of this means that CKE is back on track too. The parent reported an $18 million profit for fiscal year 2005, its first in six years. CKE's stock is up as well, trading around $12 a share in mid-August. Now, instead of closing restaurants, Puzder is planning to expand the Hardee's chain with 12 new locations by January.

But don't think that Puzder is forsaking healthier foods altogether. This fall he plans to promote Hardee's first non-Thickburger sandwich in two years: a hefty chicken club sporting plenty of crisp lettuce and big juicy tomatoes. You can be sure it'll have a stack of thick bacon too.

Napoleons Key to Victory
The Measure of Leadership _The only real measure of business leadership is results. This requires the ability to act boldly with no guarantees of success. The greatest obstacle to overcome is fear of the unknown.
The Roots of Fear _Most fear however, is rooted in ignorance. The more knowledge or skill you have in any area, the less fear it holds. Napoleon Bonaparte is considered by historians to be perhaps the greatest single military leader who ever lived. More than 100,000 books have been written about him since his death on St. Helena.
Pay Attention To Detail _Napoleon's courage was legendary but it was not vain or impetuous. Napoleon was famous for his fastidious attention to detail, for taking pains to study and thoroughly understand every military situation he ever faced. He led the French army in hundreds of minor and major engagements and lost only three, the last one being Waterloo.
Think Things Through Completely _The more you know about what you face, the lower your level of ignorance, the more courage and confidence you will have naturally. The more time you take to think through a situation, the more capable you will be of dealing with it when it arises.
Napoleon planned for every contingency. He carefully considered and followed through to its natural conclusion every setback or possibility of defeat he might encounter and then he prepared against it.
Be Prepared For Every Event _To be caught unprepared for unexpected setbacks is a mark of weak leadership. Confidence comes from the constructive use of pessimism, thinking about what could go wrong long before it does.
Action Exercises _Here are two ways you can apply Napoleon's strategy to your situation. First, become an expert in your field . Never stop learning and growing . The more you know, the more confidence you will have.
Second, get the facts. Double check everything . Be prepared for unexpected setbacks and reversals. The more prepared you are, the more confidence you will have.

Bob Wright stepped into the big leagues of media last year, when he led NBC's merger with Vivendi Universal (V) Entertainment. The megadeal turned the TV network chief into a major Hollywood player, with movie studios, theme parks, and an expanded lineup of cable channels in his domain. At a time when big media is aching to get smaller -- look no further than Viacom's (VIA) planned breakup into two companies -- Wright decided to double down on creative content. And he might not even be done yet: In July the New York Post reported that NBC Universal is in talks to acquire DreamWorks SKG, a move that would beef up its movie portfolio.
So far, sticking with content looks like a smart bet. Even as NBC plummeted to fourth place in viewership, cable and film earnings kept the company, which is 80 percent owned by GE (GE) and 20 percent by Vivendi, growing in the double digits. But Wright has more on his mind than a replacement for Friends. Electronic piracy, the bane of the music industry, is starting to hit movies. Google (GOOG), TiVo (TIVO), and Yahoo (YHOO) are threatening to upend the video business. Wright still believes he’s made the right bet -- content, he says, will have value, no matter who distributes it. But he openly admits that the Internet is making things "awkward" for him. Business 2.0 met with Wright to find out how he plans to sort things out.

What do you make of the fact that a major television executive like Lloyd Braun has gone to Yahoo?
I’m happy that things worked out so well. You have to admit, it’s surprising. A year ago ABC was down in the dumps and he and Susan Lyne got "Goodbye and good luck." Both of their shows, Lost and Desperate Housewives, turned out to be rescue shows for ABC. It’s really quite remarkable that both of them are elsewhere now.

This kind of movement is evolutionary, though. We are all migrating to a digital world, and people move from content businesses to distribution businesses all the time. You happen to be picking one who went to the Internet. They could just as easily have gone to the wireless side or cable or satellite, or some other piece of the distribution game. But of those forms of distribution, the most awkward ones for us are the Internet search engines. And they are very important. I don’t mean to downplay them.

What do you mean by "awkward"?
Our business is developing, producing, and marketing programming. By choice, not chance, we have taken the position that we are not tying ourselves to one or two forms of distribution. We're going to try to make our programming as available and as marketable to as many forms of transmission as possible. We have broadcasting, cable, satellite, DVDs, and our theatrical base. We’ve seen wireless join recently, though it's still very early there.

But I think the one that we have't really embraced as much as we'd like is the Internet, which is represented by Lloyd and his compatriots. The awkwardness of the Internet is that in other forms of distribution we have a relative degree of comfort with the security of the programming that we're transmitting. We know there’s leakage from theaters, we know there are stolen and counterfeited DVDs, we know that people steal satellite cards and cable boxes. But each one of those channels has its own form of security. When we get to the Internet, it's just much harder. It's early in the process, and you don't have that level of protection.

Do you think the music business has solved that problem?
I ask that question all the time. And I get different answers from people in the music industry. I think they feel obligated to say that iTunes has been very beneficial, but then they point out that they really can't live on the revenue. They look at it as sort of supplemental income. It brings some level of recognition that there is real value in their intellectual property, even if it's only 99 cents, that it's valuable, and that people are respecting that it has some value. But I don't think any of them think it's an answer. And the reality of it is that the peer-to-peer aspect of Internet trading is still wide open.

The history of music was radio and a lot of free promotion. It never had the history that motion pictures did, where people paid for it from the beginning, whether it was a nickel at the nickelodeon or $12 today at a theater. Television has always had advertising support with it. It was never really given away.

Online, leaders like Yahoo haven't figured out the value of video content. And we're grappling with that. We’ve got to find a way to get there. We have to be able to provide programming in such a way that we don't damage our existing distributors intentionally or even accidentally. The process of how we embrace the Internet isn't clear.

Won't we be able to combine advertising and video over the Internet?
The model is just taking form. When I talk to advertisers or agencies, it's not clear exactly what they want out of the Internet. We're not there yet. It's not lost on me that video seems to be the fastest-growing segment in search. And Google and Yahoo recognize that they’re going to have to start either producing or licensing content. And I think it makes a lot more sense to license because there's so much content available.

News is one of your key content operations. You recently said that despite all the negative stories about the broadcast news business, the sky wasn't falling. Why?
There’s always going to be a news business. That’s the one thing that's for sure. And there’s always going to be a large audience for it. The reported death of network news has been the slowest death of all times. You are so overcome today with alarmingly huge choices for information that there is a need for a place for people to come to get a condensed but big view of what's happening. If I go online, it's hard to find that context.

Now that you have Universal, prime-time advertising is only 15 percent of your business. But it’s still a critical barometer of the NBC network’s health. What has to be done there?
We do have work to do. Prime time is the major league of entertainment programming, and you're trying your very best to get the largest possible audience. We're going through a period here where we don't have as many winners as we're accustomed to having. I'm not denying that we would like to have some wonderful replacements for Friends or ER, but, you know, they don’t all show up on the same day.

Does the advent of video-on-demand and the DVR mean the 30-second slot is an endangered species?
No, I don't think so. Some of the cable operators have said to me, "Bob, you know, if you'll give us your programs and let us put them in a video-on-demand basis, then we'll make sure we attach the advertising to them." That's fair. I think we can have our cake and eat it too. I think people are going to get the ability to pick and choose and we’re going to find a way to attach advertising to it. Almost like Yahoo does now with search.

Is Yahoo a partner or a competitor?
Six or seven years ago, Yahoo was the king of the Net. Then it went into the ditch with everybody else. After the crash in 2001, the people there went back to their roots and rebuilt Yahoo as a search engine. Terry Semel, when he came in there, said, this is a great deal, but other people can be search engines, so we’ve got to differentiate ourselves here. Yahoo has a significant future. But it isn’t quite clear what it is.

Venture capitalists love to repeat a popular refrain: “I invest in people, not business plans.” That may be, but they still want to see a plan. Not that a business plan will secure millions in funding on its own merits, of course; its real purpose is just to get a VC to pay enough attention to your idea to call you back. The wrong plan, though, could get you barred from the front door.
The first misstep to avoid may seem obvious, but venture firms routinely reject ideas simply because they’re sent to the wrong partner -- someone whose area of expertise doesn’t align with your business. You sent your digital media idea to a telecom specialist? "It'll never leave my inbox," says Philippe Cases, a partner at Partech International. Fortunately for you, we’ve done this critical bit of work by finding VCs who are just waiting for your pitch. Now all you have to do is write it up.

Just as Hollywood producers get bombarded by unsolicited scripts, venture capitalists are deluged with scores of 50-page business plans, many of which are never read. Hence, another preliminary rule of thumb: Skip the full business plan in favor of an executive summary of less than three pages that hits all the elements highlighted below. Don’t worry: If you get that coveted callback, you'll have ample opportunity to wow them with the full 50-page treatment.

TWO-SENTENCE ELEVATOR PITCH
A first-rate executive summary opens with a great lead. Sequoia Capital, one of the first venture firms to back Google (GOOG), suggests that you should be able to explain your idea on the back of a business card. If you can’t lay it out in a gripping sentence or two, a VC might assume you don’t have a good grasp of your concept.

DEFENSIBLE DIFFERENTIATOR
Next section: What twist or technology makes your company special and compelling to the market? A common goof entrepreneurs make is expounding too much on the market without first offering up an ironclad defense of the proposed company. Venture firms know a lot more about the market than you do; what they want to hear is how you’re going to dominate it.

STRONG MANAGEMENT TEAM
Succinctly describe yourself and the colleagues you’re bringing in. “No egos, please” is Woodside Fund managing director John Occhipinti’s plea when it comes to choosing the right details. VCs want to see not only the experience you bring to the table, but also the specific skills and accomplishments that prove you and your comrades are up to the job. “When I read, ‘I have held leadership positions at companies like Oracle (ORCL), Microsoft (MSFT), and IBM (IBM),’ my eyes roll,” Cases says. “What I want to see is a person who initiated a product and saw it to $100 million in sales. I want the two or three things that truly make you different from someone else.”

That said, don’t exaggerate. At a glance, a VC will likely know what holes need to be filled in the management team. If anything, be up-front about what your team lacks.

REALISTIC MARKET ANALYSIS
Keep your market-size projections conservative and defend whatever numbers you provide. If you’re in the very early stages, most likely you can’t calculate an accurate market size anyway. Just admit that. Tossing out ridiculous hockey-stick estimates will only undermine the credibility your plan has generated up to this point.

REALISTIC GOALS
Finally, you need to size up your financial targets. "I always have problems with startups making unrealistic assumptions -- how much money they need or how quickly they can ramp revenue," Redpoint Ventures’s Greg Martin says. "Those can really kill a deal for me." Thus, lay out your revenue projections and capital needs for just three or four years. Don’t promise the moon and don’t ask for it either: VCs expect you to be frugal.

Another potential deal killer? Offering up ill-founded estimates on the returns the venture firm can expect to see from your company, or what its valuation is. Leave that math to the VC -- if you're fortunate enough to get that far.

$5M MOBILE ID FOR CREDIT CARD PURCHASES
WHO: John Occhipinti, Woodside Fund, Redwood Shores, Calif.
WHO HE IS: A former executive at Oracle and Netscape, Occhipinti is a managing director and security specialist, leading investments in BorderWare and Tacit.
WHAT HE WANTS: Fraudproof credit card authorization via cell phones and PDAs.
WHY IT'S SMART: Credit card fraud is more rampant than ever, and consumers aren't the only ones feeling the pain. Last year banks and merchants lost more than $2 billion to fraud. Most of that could be eliminated if they offered two-part authentication with credit and debit purchases -- something akin to using a SecureID code as well as a password to access e-mail. Occhipinti thinks the cell phone, packaged with the right software, presents an ideal solution. Imagine getting a text message on your phone from a merchant, prompting you for a password or code to approve the $100 purchase you just made on your home PC or at the mall. It's an extra step, but one that most consumers would be happy to take to safeguard their privacy. More important, Occhipinti says, big banks would pay dearly to be able to offer the service. "It's a killer app no one's touched yet," Occhipinti says, "but the technology's within reach."
WHAT HE WANTS FROM YOU: A finished prototype application within eight months. "I'm looking for the best technologists in security and wireless, the top 2 percent in their industry," Occhipinti says. The team would need to be working with a handful of banks and merchants ready to start trials, in hopes of licensing the technology or selling the company.
SEND YOUR PLAN TO: jco@woodsidefund.com

$7M BACK-OFFICE BANK SYNDICATE
WHO: Philippe Cases, Partech International, San Francisco
WHO HE IS: Cases and his colleagues have long made smart bets in technology, backing innovative firms like Cadence Design Systems, Informatica, and Vignette. Partech currently manages more than $850 million in venture funds.
WHAT HE WANTS: A startup that converts proprietary software applications from large banks into a co-op IT service for participating members.
WHY IT'S SMART: Major banks spend $25 million a year upgrading and maintaining custom back-office software to handle tasks like mortgage applications, loan approvals, and clearing checks. Yet across the industry, 80 percent of those applications are nearly identical. The fix: Persuade banks to turn over their proprietary code to a team of software buffs who will repackage and debug the apps and then sell them as a subscription service to participating members. Cases thinks banks could save as much as 40 percent of their IT costs; the startup that can pull it off, he estimates, is looking at a $500 million market per application.
WHAT HE WANTS FROM YOU: First, you'll need the technical chops and engineering talent (with a team of 10 people or less) to rework all that software code into products more easily managed by the banks. Second, it's important to persuade one or two major banks to partner with you to get the project moving -- no easy task, considering that banks are notoriously risk-averse when it comes to tinkering with mission-critical systems. "It doesn't have to be their entire suite of banking apps," Cases says, "but enough to prove out the model and rope in the rest."
SEND YOUR PLAN TO: pcases@partechvc.com

$5M THE ULTIMATE ONLINE UPSELL
WHO: Greg Martin, Redpoint Ventures, Los Angeles
WHO HE IS: Martin handles communications and digital media investments for the venture firm, which has recently scored with portfolio companies like MySpace and Topspin.
WHAT HE WANTS: Software that makes better product recommendations to online shoppers.
WHY IT'S SMART: Amazon may have been the pioneer in so-called collaborative filtering -- matching online customers with products they'd be likely to buy -- but by no means has it mastered the discipline. The percentage of buyers who make recommended purchases online is abysmal. "It's about 3 percent for major Web retailers, and for most other merchants it's lower than that," Martin says. Software that can better sort and sift customer data and increase the conversion rates by just a percentage point or two, he says, would generate a healthy business. Beyond Amazon, after all, thousands of online merchants still don't have access to such tools. "There's a lot of information out there that's being ignored," Martin says.
WHAT HE WANTS FROM YOU: A group of no more than 10 people to tinker with and refine the algorithms to make online purchase suggestions more efficient. Says Martin, "I'd want to see the technology working, with a few customers onboard." The next phase if all goes well? Developing algorithms for websites to serve up more relevant ads.
SEND YOUR PLAN TO: gmartin@redpoint.com

$5M SUBSCRIPTION PCS FOR SENIORS
WHO: John Zagula, Ignition Partners, Bellevue, Wash.
WHO HE IS: As a top marketing exec for Microsoft Office from 1992 to 2000, Zagula helped it grow from a $50 million product to a $10 billion industry standard. In 2000 he joined Ignition, which manages $300 million in venture funds.
WHAT HE WANTS: PCs tailored for senior citizens, who would rent the machines on a monthly basis.
WHY IT'S SMART: By far, seniors make up the fastest-growing demographic in the United States; their numbers will swell to more than 70 million by 2030, when they'll make up 17 percent of the population. They're also going online in record numbers, despite the fact that many seniors find PCs too complex to use.
Zagula thinks the answer is a stripped-down PC that runs on Web-based applications, each tailored to make the most popular features -- e-mail, instant messaging, photo sharing, bill paying, gift shopping, prescription ordering -- as easy to use as hitting the "On" button. Leasing the machines for $30 or so per month would be attractive to seniors who are reluctant to buy. Retirement communities might lease them en masse (as part of tenants' monthly fees), and the AARP could offer them to its members at a discounted rate. "Any easy solution will be hugely differentiated, given how much the software industry seems addicted to adding complexity," Zagula says. "My mother-in-law is the customer. She's a terrific person with ample discretionary income. And her need is clear: She wants a better means of gossiping with all her friends."
WHAT HE WANTS FROM YOU: You and a team of four or five programmers need to develop a handful of Web applications with a senior-friendly format to make them irresistible. Zagula expects the initial funding to pay for limited trials.
SEND YOUR PLAN TO: info@ignitionpartners.com

$3M AN EVEN SMARTER SMARTPHONE
WHO: Ryan Floyd, Storm Ventures, Menlo Park, Calif.
WHO HE IS: Floyd is a founding partner at this five-year-old Sand Hill Road outfit, which recently launched a $220 million fund focused on early-stage tech firms.
WHAT HE WANTS: A clever resurrection of the smart-card concept: a software platform for cell phones that allows consumers to make purchases or open doors by waving their phones in front of tiny infrared or RFID readers.
WHY IT'S SMART: Smart cards turned out to be pretty dumb -- at least in the United States, where consumers resisted the notion of carrying yet another piece of plastic. Floyd believes it's time to bring back the technology, only this time make the cell phone the magic wand for transactions. NTT DoCoMo already offers a similar service in Japan, where consumers make convenience store purchases by waving their phones over checkout readers. Is the U.S. market ready for it? Not yet, Floyd says, but if you start now and it takes off, you could own the business.
WHAT HE WANTS FROM YOU: A prototype application that works with several phones and checkout systems. Floyd estimates that a team of 10 can complete the software and show how existing credit card readers in stores could be retrofitted cheaply with IR or RFID chips. Who's the ideal leader of the team? Says Floyd, "The best scenario is you pull someone out of Visa, MasterCard, or PayPal (PYPL)."
SEND YOUR PLAN TO: ryan@stormventures.com

$3M OPEN-SOURCE IT CENTER
WHO: Matt Miller, WaldenVC, San Francisco
WHO HE IS: A former exec at Oracle and Remedy and now general partner at WaldenVC, Miller got a sixfold return on his investment in Niku, an IT software vendor that was acquired by Computer Associates for $350 million. The firm completed nine deals in the past year, including a $5 million placement with Shawn Fanning's Snocap and an estimated $13 million buyout of ritzy San Francisco retailer Gump's.
WHAT HE WANTS: A startup that can create a suite of open-source applications for maintenance and upkeep of a company's IT backbone. It would give away the programs to corporate clients but charge for service and upkeep at a substantial discount off current rates.
WHY IT'S SMART: Despite IBM's push to develop cheaper open-source offerings for back-office IT, Big Blue, Hewlett-Packard (HPQ), and others still rule the market with pricey software packages and even pricier maintenance contracts. According to Miller, a comparable open-source alternative -- for tasks like network management and help-desk queries -- would be an immediate hit with budget-conscious midsize firms willing to take a chance on a newcomer. Customers, Miller adds, would get access to the source code and a set of development tools, making the programs much easier for IT managers to customize and upgrade and slashing long-term costs even further.
WHAT HE WANTS FROM YOU: A team of five to seven open-source developers that can create a handful of back-office applications within a year, along with a couple of major clients willing to put them through trials.
SEND YOUR PLAN TO: matt@waldenvc.com

$2M CUSTOMER SERVICE OVER IP
WHO: Shanda Bahles, El Dorado Ventures, Menlo Park, Calif.
WHO SHE IS: Bahles has been a venture capitalist since 1987, a year after $750 million El Dorado was formed. Among the firm's notable successes are investments in DataSage, EarthLink, and Novellus Systems.
WHAT SHE WANTS: VOIP-enabled software that merchants can use to automate and customize phone orders from their customers.
WHY IT'S SMART: Folks who've switched their home phones to voice-over-IP already know how seamlessly the service can funnel incoming or outgoing call data to the Web. Retail merchants are next in line to reap similar benefits. Imagine calling Domino's and, instead of getting the usual "Hold, please," being greeted by name by an automated voice, which asks whether you want the same large pepperoni you ordered last time and whether it's to be delivered to your work or home address. Software tailored to run on a merchant's VOIP system could mine all that data while improving customer service (imagine that) and lowering costs.
WHAT SHE WANTS FROM YOU: To pull off a software prototype in six months with just three or four people. "Large teams in a startup have diminishing returns," Bahles says.
SEND YOUR PLAN TO: shanda@eldorado.com

$5M PLUG-AND-PLAY MOBILE SERVICES
WHO: Eric Buatois, Sofinnova Ventures, San Francisco
WHO HE IS: After a 14-year stint at HP running its telecom strategy in Europe, Buatois joined Sofinnova in 2001 as a partner focusing on investments in wireless. His recent placements include Upek, a fingerprint-reading technology company, and HelloSoft, a chip-design company for multifunction phones.
WHAT HE WANTS: What wireless networks have been craving for years: a single software platform from which they can launch new services.
WHY IT'S SMART: Today's networks require a separate software layer for every service, from text messaging to video, each with its own protocols and provisioning. The approach is extremely costly and complex to maintain, given the competition among carriers to offer more applications that will drive growth and reduce customer churn. A single software launching pad would allow wireless carriers to turn services on and off as they see fit and add new ones without having to reconfigure their networks. It's an opportunity best suited to a startup, Buatois says, since "this is something the big infrastructure providers won't do and the wireless carriers and ISPs can't do themselves."
WHAT HE WANTS FROM YOU: Design the basic software in less than two years with no more than five developers. Once the prototype is ready, Buatois would fund a team of 20 or so to market the product. An obvious consideration: "This is a big engineering problem," Buatois says, "and there aren't many people who can pull it off." He'll be looking for people with the right technical qualifications and experience at companies like Alcatel (ALA), Cisco (CSCO), or Lucent (LU).
SEND YOUR PLAN TO: eric@sofinnova.com

$8M HOME PATIENT MONITORING
WHO: David Aslin and Paul Badawi, 3i, Menlo Park, Calif.
WHO THEY ARE: Aslin is a partner in 3i's West Coast office. Badawi, a former genetic researcher for the National Institutes of Health, joined 3i last year as an entrepreneurial fellow. 3i invests $1.6 billion a year in buyouts and venture deals, the majority in health care and IT.
WHAT THEY WANT: A wireless home-monitoring network for recuperating hospital patients.
WHY IT'S SMART: No one likes extended hospital stays. Not patients, not hospitals, and not insurance companies paying bills that can exceed $5,000 a day. For the critically ill, there's no way around lengthy visits. But thousands of other patients could be sent home early if they could be monitored at home or at a lower-cost facility. Badawi and Aslin envision a wireless transmitter that would attach to existing hardware such as portable ECG machines and heart-rate and blood-pressure monitors. The device would send data through a wireless router to a cluster of back-office servers. The servers would function like a call center, routing a patient's vital signs to the right nursing station or on-call physician. Trimming just two days off the typical 10-day hospital stay for stroke victims would be a service worth $2.7 billion.
WHAT HE WANTS FROM YOU: Between you and a partner, you'll need expertise in medical device technology and database management to get a working demo ready to pitch to HMOs or insurance companies. Half a million dollars in seed money should be sufficient to get that far. "It's not the technology, it's the complexity of navigating the health-care system that's going to be difficult," Badawi says. If you can sign up an HMO to test the system, 3i promises $7.5 million more to bring it to market.
SEND YOUR PLAN TO: david_aslin@3i.com

$4M A KILLER APP FOR CONVERGENCE
WHO: Randy Haykin, Outlook Ventures, San Francisco
WHO HE IS: Before co-founding Outlook in 1995, managing director Haykin held senior marketing positions at Apple (AAPL), Viacom (VIA), and Yahoo. The firm's best bets in recent years include Classmates and Overture.
WHAT HE WANTS: Software that permits any Net-connected gadget in your home to access and display services like VOIP, instant messaging, and streaming television.
WHY IT'S SMART: Convergence is happening in fits and starts with the emergence of devices such as IP-linked LCDs in refrigerators and souped-up handsets and PDAs that can stream music and video. What's missing, though, is software allowing the devices to talk to one another, so you can use one to pick up where you left off with another on a messaging session, your voice-mail, or a tune you were listening to. ISPs need to sell the kinds of services convergence promises, but without software knitting them together, very little will converge.
WHAT HE WANTS FROM YOU: A prototype platform for a variety of devices. At least one senior member of your team should come from a consumer electronics giant.
SEND YOUR PLAN TO: randy@outlookventures.com

Locals call it Viagra Falls -- a fountain in the middle of a roadside lake, spraying jets of water three stories high. On a summer morning under blue skies, it's a serene backdrop for a pair of elderly women strolling the sidewalk in shorts and Nikes. Up the road, a distinguisnhed foursome makes its way across the greens at the Whisper Creek Golf Club. Players pack the nearby tennis courts. And in every other direction are dozens of pristine ranch-style homes, built exclusively for buyers ages 55 and older.
This is Sun City Huntley, a booming residential community 50 miles northwest of downtown Chicago, where more than 4,200 houses have been built and sold since 1998. Another 1,600 homes under construction dot the development's 2,200 acres of rolling wetlands.

The mastermind behind this and dozens of other freshly gated communities around the country is 40-year-old Richard Dugas, CEO of Pulte Homes, now the top homebuilder in the United States, with $11.7 billion in annual revenue. As the company's first "active adult" development outside the Sun Belt, Huntley is more than just a pretty portrait of suburban leisure. Homes aimed at older buyers generate a third of Pulte's sales and a slightly higher percentage of net income. Pulte's profit jumped 63 percent in the first half of 2005, its stock has more than tripled since 2003, and Dugas is promising 15 to 20 percent annual sales growth through 2007.

Aggressively targeting the fast-growing boomer market -- a consumer demographic that will swell to 80 million by 2020 -- Pulte is building 22 retirement communities, half of them in cold-weather states like Illinois, Michigan, New Jersey, and Ohio. The company is also buying land at a record pace to meet demand in every other demographic niche. "There's not an attractive part of the market that Pulte isn't hitting," says Standard & Poor's real estate analyst Bill Mack.

Behind much of this success is an old business practice -- sophisticated market research -- that has eluded the notoriously fragmented industry for decades. Even today, the 10 largest U.S. homebuilders control just 20 percent of the $375 billion market. Dugas and Pulte, however, are laying a new foundation, paying as much attention to consumer surveys and demographic data as they do to the detail work on custom homes. "Toyota (TM) sells Corollas to entry-level buyers, Camrys to the middle market, and Lexuses to the top," Dugas says. "Why can't we do the same in homebuilding?"

Not only has Dugas begun relying on internal research to find buyers for places like Sun City Huntley, he's counting on it to transform Pulte into the first U.S. homebuilder with national scale. The numbers are helping him to find prized land that other builders pass up and to better match home designs with his customers' tastes. Ultimately, Dugas says, research will protect the company from the precarious whims of the market. "If they can keep it up," predicts Greg Gieber, a housing industry analyst with A.G. Edwards (AGE), "Pulte is going to turn into the megafirm of the industry."

The Quest for Green Acres
Few people have had a better ringside seat to the American housing boom than Bill Pulte, the company's jovial, white-haired patriarch. As an 18-year-old in 1950, Pulte and a few buddies built a five-bedroom bungalow on Detroit's east side. The success of that project drew more work, and by the time Pulte incorporated his company in 1956, large, suburban custom homes had become his trademark.

TOP HOMEBUILDERS
REVENUE (IN BILLIONS) UNITS SOLD
PULTE HOMES $11.7 38,612
D.R. HORTON $10.8 43,567
LENNAR $10.5 36,204
CENTEX $9.0 33,306
KB HOME $7.0 31,646
Sources: Builder magazine; S&P Industry Survey
As Americans fled to the burbs in the decades that followed, so did Pulte, pushing beyond Detroit to start building residential developments around cities like Atlanta, Chicago, and Washington, and posting profits year after year (54 in a row).

The basics of Pulte's business model haven't changed. Like most builders, the company makes money by buying plots of land and then selling the homes it builds on those lots. Pulte owns more land than anyone else: 366,000 lots, a seven-year supply at the current pace of construction. Today, Pulte builds 100 homes a day, in 54 metro markets spanning 28 states.

The rapid expansion, though, created a pressing need for the one tool that most homebuilders can't wield: market research. The homebuilding industry is still dominated by 70,000 small local builders, each cobbling together an average of five homes a year, so to most it makes little sense to invest in research. But when you have thousands of customers scattered around the country, you have the chance to dramatically improve your results by figuring out exactly what they want.

That's the opportunity that helped persuade Dugas, then 29, to leave his six-figure job as an efficiency manager at PepsiCo (PEP) in 1994 to join the construction business. Dugas hardly fit the profile. Raised on the bayous of southern Louisiana, he helped manage his father's sporting goods store near Baton Rouge before earning a marketing degree at Louisiana State University. From there he went to Exxon, helping to market gas stations, and then spent four years squeezing costs out of Pepsi plants.

"Richard didn't know anything about homebuilding when he got here," says Bill Pulte, who at 73 remains the company's chairman. "But I was struck by how his mind worked and how he was never afraid to ask questions." As a VP for process improvement, Dugas helped reduce construction time in Pulte's hottest markets, Arizona and California. That led to a promotion as one of Pulte's top field generals, buying land and negotiating with fickle contractors and suppliers. By 2001 he was running the company's coastal division, generating $650 million in revenue, and in 2002 Pulte named Dugas COO. From that perch, Dugas still saw the unsolved problem -- building thousands of homes without serious research driving the process.

A Segment for Every Buyer
Bill Pulte had experimented with market research, but when Dugas was named to the top job in 2003, he quickly made it the centerpiece of the homebuilder's strategy. He quadrupled the annual marketing and segmentation budget to $40 million and began bringing in senior managers from Clorox, Disney (DIS), Wal-Mart (WMT), and elsewhere. Then Dugas assigned a new segmentation team, led by a former DaimlerChrysler (DCX) exec, to start dividing up potential homebuyers as they might Pepsi and Mountain Dew drinkers. Digging into a national database of more than 500,000 consumers, the team split the market into 11 target groups, from "starters" (first-time buyers) and "restarters" (single parents reentering the market) to "upwardly mobile families" and "retired/independents."

Such detailed segmentation data -- a kind of real estate talisman -- began to drive decisions in every part of the company. Take land buying, for example, a $5 billion annual expenditure. "Not a dollar of revenue comes in without us first controlling a lot," says Dugas, who runs a land-acquisition team of about 200. They scout states, cities, even small neighborhood pockets that pair up ideally with target customers. "We can say, 'In the southeast part of this city, or the northwest part of that one, this consumer is underserved,'" Dugas says. "We buy land where customer demand most exceeds supply."

The process can be like a search for hidden gems. "We do a comprehensive area study by demographic -- where they want to live, what they want," says Jim Rorison, who heads Pulte's land-buying operation in the eastern United States. "You find niches to serve undertargeted groups." Case in point are the retirees in Sun City Huntley. "Other people thought Huntley was Iowa," Rorison says. "But we matched what the demographic was looking for." That is, a house within a couple hours' drive of their previous homes outside Chicago. More than 6,700 boomers now live there, and Pulte expects to sell out the development by 2007.

All this mining of data helps Pulte on a smaller scale too. The company recently acquired a former hospital complex in Point Pleasant, a densely populated area on the New Jersey shore between Manhattan and Philadelphia. The site drew little interest from developers, but when Pulte's surveys showed that it was a good match for 44- to 55-year-old baby boomers, Pulte paid $11.5 million for it and agreed to demolish the hospital, remove the medical waste, reengineer the soil, and build condos. "It's close to amenities that active adults like -- cultural activities, transportation, nice canal views," Rorison explains. He expects a return on invested capital of at least 21 percent.

How Pulte Covers the Market
First-Timers
San Antonio, TX $145,990
2,519 sq. ft., 4 bedrooms, 2 baths
TARGET: First-time homebuyers, ages 20 to early 30s
HOTTEST MARKETS: Texas, Midwest
KEY CHARACTERISTICS: Young couples looking to break out of the rental cycle. Townhomes are popular for first-timers buying in big cities.
PORTION OF PULTE REVENUE: 27%
Second Move-Ups
South Orange, NJ $999,000
4,827 sq. ft., 3 bedrooms, 3 baths
TARGET: Homeowners looking to upgrade a second time, ages 40 to early 50s
HOTTEST MARKETS: Florida, West (Arizona, California, Nevada), Northeast
KEY CHARACTERISTICS: Well-off families with older kids, looking for lots of space and high-end features.
PORTION OF PULTE REVENUE: 19%
"Active Adult" Retirees
Huntley, IL $372,990
2,833 sq. ft., 2 bedrooms, 2 baths
TARGET: Baby boomers easing into retirement, ages 55 and up
HOTTEST MARKETS: West, Midwest
KEY CHARACTERISTICS: One-third of these buyers pay cash. They'll sacrifice square footage for luxury touches and access to golf and health clubs.
PORTION OF PULTE REVENUE: 33%
One Countertop Fits All
Market research generates another critical benefit too: hammering needless costs and complexity out of Pulte's supply chain. By parsing its database, the company discovered that 80 percent of its homebuyers end up picking the same countertops, floors, carpets, toilets, and other options. Yet the company buys 35 toilet models from six manufacturers, purchases windows from 17 suppliers, and offers customers more than 2,000 floor plans. "We saw that all 11 consumer groups considered a lot of the same things the most important," says Pulte COO Steve Petruska, who has already reduced the number of floor plans to 1,250 and has begun to standardize the options nationwide. And last year Dugas hired Reginald McCoy, a former supply-chain expert at Wal-Mart, to whittle down the list of suppliers and push for cost concessions. Says Dugas, "We didn't have that experience in-house."

Besides cutting costs, Dugas says, such efforts also create brand loyalty -- something no large homebuilder has ever enjoyed. Six years ago just 20 percent of Pulte's home sales came from repeat customers and referrals. Today that figure is 45 percent.

Making so many big bets on the basis of market research does, of course, come with significant risk. Pulte's massive land position could become a liability if the real estate market goes south. While Pulte keeps about half of its 366,000 lots under option -- putting down a fraction of the total price for the right to buy the land outright later -- the company is often forced into the same precarious position as homebuyers. Last year Dugas paid $100.5 million, or three times the appraised value, for a 276-acre plot in Arizona, outbidding rival builders Toll Bros. and D.R. Horton. "It's a big balance-sheet risk," warns Friedman Billings Ramsey analyst Craig Kucera. "They can't just walk away if things go bad."

Dugas says Pulte's diversification -- geographic and demographic -- will provide the necessary hedge. "Two, three, or five markets may have a falloff in pricing, but that's not going to kill a diversified builder," he says. "I can weather these things." If only the market research could guarantee that.

On a summer morning in a hotel restaurant a block from Madison Avenue, Miles Nadal offers a harsh if familiar assessment of the advertising industry. The giant holding companies that dominate the business -- Interpublic, Omnicom, WPP, etc. -- are bloated, top-heavy, slow-witted beasts, inherently resistant to change. They're deeply wedded to the 30-second spot, a mode of persuasion that any fool can see is clearly on the wane. The industry has lost its passion and sense of fun. Its work is rapidly becoming less effective. Its customers are losing patience. "Clients are good and pissed off," Nadal says, "with institutionalized mediocrity."
By now you're thinking, yeah, OK -- but who the hell is Miles Nadal? As the chairman and CEO of Toronto-based MDC Partners, Nadal has built a different kind of holding company, investing in a loosely knit network of some of the hippest shops in advertising, including Miami’s Crispin Porter & Bogusky, the creator of Burger King's notorious "subservient chicken." At 47, Nadal has a fleshy face and a checkered history in business. He’s a Bahamas-dwelling wannabe mogul with an unfortunate tendency to lapse into New Age business mumbo jumbo. (“Cross-referral of opportunity through facilitation, not mandate” is how he describes MDC’s approach to management.) He’s also fast becoming a force to be reckoned with -- and one who just might be onto something.

MDC’s lineage runs back to 1980, when Nadal dropped out of college and used his Visa card to start a commercial photography venture. Soon he began to diversify, branching out first into printing and then into marketing. In the 1990s he went on an acquisition binge that nearly buried him in debt. When the bubble burst, Nadal sold off several of his lucrative printing operations, recapitalized MDC, and decided to focus on marketing and advertising.

Crystallizing that decision was MDC's purchase, in 2001, of a 49 percent stake in Crispin Porter. Nadal had entered the American market for cutting-edge agencies three years earlier, when MDC bought a majority interest in Margeotes Fertitta. But the Crispin Porter deal was more significant, not only because the agency was about to become searingly hot with its work for BMW’s Mini Cooper, but because it introduced Nadal to Chuck Porter, who became MDC's chief strategist. "Chuck and I together are the perfect person," Nadal explains. "With his brilliance about the industry and my financial acumen, we had the ideal solution."

With Porter serving as Nadal's eyes, ears, and brains on the acquisition front, MDC has expanded its network to include more than 30 firms, from ad agencies and media buyers to shops specializing in everything from interactive marketing to "branded entertainment." In 2004, Nadal did nine deals for a total of roughly $50 million, including snapping up 60 percent of New York- and San Francisco-based agency Kirshenbaum Bond (known for its work for Hennessy, Meow Mix, and Target (TGT)). In April, MDC agreed to pay $64 million for 62 percent of the Zyman Group, the boutique consulting outfit run by legendary Coca-Cola (KO) marketing guru Sergio Zyman.

Even with these deals in place, MDC remains a relative small fry in adland compared with the mega-holding companies. Its revenue last year was $317 million, it lost $2.2 million, and its network had essentially zero presence on the international scene.

But for clients, according to Nadal, size increasingly doesn't matter. "Crispin Porter taught us the world was going away from big and integrated and multinational toward smaller, more entrepreneurial firms," he says. "Clients are saying, 'I don’t care how many offices or people you have. I just want results.'"

For agencies, too, in Nadal's telling, being part of MDC seems an attractive proposition. The relationship is what he calls a "perpetual partnership." Though the size of the stake taken by MDC varies, it’s never 100 percent. Typically the deals consist of 50 to 90 percent cash and the remainder in MDC stock -- keeping shares in reserve for successive generations of executives. The firms are given autonomy, not forced to cross-sell services. But they can draw on the network’s resources if they choose. "Before MDC, agencies had two choices: Stay independent and hold the equity forever, or sell out," Nadal says. "What we've provided is an alternative that lets them retain what's made them successful but deals with fundamental business issues -- succession, liquidity, capital to grow."

Among agency creative types, Nadal may be seen, as Mediaweek once put it, as a "benevolent banker." But that metaphor isn’t quite right. More apt would be to call Nadal an advertising venture capitalist. "We're like a single-minded VC focused on one industry, but it's not technology -- it's marketing innovation," he says. "The only difference is that our technology is intellectual property. It's cerebral, not tangible." (Which, of course, could also be said of software and Internet services.)

Like many VCs, Nadal harbors ambitions that are vast and yawning. In the past he has said that within five years he expects MDC to have revenue of $2 billion and stakes in 100 companies. "If I had my way, I would own 50 percent of every smart firm in the world," he proclaims. "They could be in Bumfuck, Idaho, in Kuala Lumpur, in New York, in Minneapolis, or in a basement in Shanghai. I don't care. Anybody who’s brilliant, who's working on ideas that are going to reinvent this industry -- I want to own half."

Talk like this should keep MDC shareholders awake at night. For me, it summons to mind three words: delusions of grandeur. In the past, in fact, Nadal has been viewed with suspicion in financial circles. Despite MDC’s financial ups and downs, Nadal pays himself handsomely -- $3 million last year -- financing a lifestyle that includes not just a Paradise Island penthouse but a house in Palm Beach and an 80-foot yacht, which he named Dare to Dream. Until recent changes, the company’s corporate governance practices left much to be desired: Nadal’s former father-in-law sat on MDC’s board, and Nadal and other executives took interest-free loans from its coffers.

Yet for all of Nadal's foibles, the model he’s advancing at MDC strikes me as promising. There's no denying that the major holding companies have become so vast, and were assembled so promiscuously, that they can barely be managed. Clients are indeed pissed off and ready as never before to gamble on new approaches. They recognize that the media landscape has radically fragmented, that 30-second spots are not enough to reach today's consumers, especially the younger, savvier ones. Meanwhile, Nadal seems to have grasped a basic point about why so many acquisitions of small creative agencies have failed so miserably: After the deals were done, the talent walked out the door. "What the agencies care about first and foremost is, hey, don't screw with our culture," Nadal says. "Our culture is precious -- it works."

The larger question, as Nadal understands, is how to create "a culture of institutionalized creativity," as opposed to "institutionalized mediocrity." With Chuck Porter’s help, he's building MDC around principles that stand a decent chance of leading in that direction. The biggest threat to the company's future is his own appetite for growth -- the possibility that, as he puts it, he’ll do "something big and dumb."

Nadal is smart and agressive. But disciplined? There's the rub.

Want a guilt-free alternative to Indian outsourcing? You might follow the lead of MIT and the Soros Foundation. Both are clients of Digital Divide Data, a nonprofit based in New York and Phnom Penh, Cambodia. The company hires skilled, unemployed, often disabled workers in Cambodia and Laos and pays them $75 a month -- not bad in places where the average annual income is just $400. Meanwhile, its clients get a competitively priced data-entry service and the assurance that workers are being treated fairly. "We want to build tech sectors in Cambodia and Laos," says Digital Divide CEO Jeremy Hockenstein. "And we want to show that it can be done in a way that's both profitable and socially responsible."
Hockenstein and his partners founded the company in 2001 after traveling to Cambodia and observing a wide gap between trained workers and job opportunities. With a $25,000 grant and $25,000 from the founders, Digital Divide hired 20 employees, most of them war refugees. By 2004 the workforce had swelled to 200, and last year the company rang up $400,000 in sales. Its revenue covers Digital Divide's operating costs, but the company still solicits donations -- about $250,000 last year -- so it can offer six-hour workdays and tuition subsidies to help staffers move into better jobs. One alum, 24-year-old Naleak Eng, recently moved from Cambodia to Boston to pursue a high school diploma. No small feat, considering that Eng, born with three fingers on each hand, was destitute four years ago. "Being disabled, I was so shy until Jeremy gave me the challenge of doing this job," she says. Maybe outsourcing isn’t so bad after all.

Focus groups are fundamentally flawed: They’re time-consuming, expensive, and unreliable, since participants often alter their opinions to fit in. Enter Umbria Communications, a startup based in Boulder, Colo., that’s transforming the Internet into one gigantic focus group. Its software, called Buzz Report, scours 13 million blogs to discover what consumers are saying about new products and trends. Since its launch in 2004, Umbria has scored $6.7 million in funding and nearly 40 clients, including SAP and Sprint PCS. Electronic Arts (ERTS) uses the software to see what bloggers are saying about upcoming games so it can predict demand.
Though Intelliseek and Technorati also crawl blogs, Umbria’s automated software is more sophisticated. The brainchild of company founder and predictive analysis expert Howard Kaushansky, Umbria uses language-processing algorithms that track positive and negative mentions of a brand and predict the age range and gender of every opiner. Those capabilities have attracted market research firms such as G Whiz Entertainment, which relies on Umbria to help its clients craft Gen Y-targeted marketing campaigns. Says G Whiz director of client services Bethany Harris, "It's a medium where people readily profess very private thoughts in a very public forum."

Looking to build buzz around hip-hop artist Cassidy, Sony (SNE) BMG shunned CD singles and MTV sneak previews. Instead, the label chose a track called “I’m a Hustla” from Cassidy’s new album and turned it into a 25-second sample that could be downloaded as a ringtone.
The $2.49 song clip, known as a mastertone, was an instant hit. In four months it was downloaded half a million times. By the time the album finally debuted in June -- at No. 5 on the Billboard chart -- the ringtone had gone platinum. “The ringtone market is the singles market of our time,” says Thomas Hesse, president of Sony BMG’s global digital-music division.

Record labels see ringtone demand as a sign that music sales are moving to cell phones. Last year consumers spent $4 billion on ringtones, with about 30 percent going to mastertones. This month Motorola (MOT) and Sony Ericsson (ERICY) are rolling out handsets capable of downloading and storing hundreds of songs; Nokia’s will debut this fall. “We think that, for some people, the phone will eventually replace the MP3 player,” says Thomas Ryan, a senior VP at EMI.

That will depend on what happens when wireless carriers begin delivering full-length songs to phones. Verizon Wireless is rumored to be launching a nationwide 3G (third-generation) music service selling mastertones and songs this fall. Its rivals won’t be far behind. “There will be some advanced music services in place by the end of the year,” admits Mark Nagel, director of Cingular’s entertainment services group. Market research firm Strategy Analytics expects mobile music to be a $9 billion business by 2010.

The phone is the first real digital-music moneymaker for record labels, because they bring in much more from cell-phone downloads than from other digital outlets. Mastertones sell for nearly three times as much as iTunes tracks, and the labels often command royalties as high as 50 percent. “In a little more than a year, we’ve generated as much revenue from ringtones as from all other digital music combined,” says Sony BMG’s Hesse. That take came to roughly $125 million in 2004.

As soon as full song downloads take off in a few years, mastertone prices will likely drop. Thomas Dolby Robertson, a former pop star who founded Retro Ringtones, thinks the clips will eventually be free. “We’re sort of like drug dealers, using ringtones to get people hooked on digital music,” Robertson says. If recent sales are any clue, we’re becoming a nation with a serious jones.