what’s inside Editor’s Note James Baker thought he was in the right place at the right time when his company introduced its anthrax decontamination technology right after 9/11 (page 4). Fear of anthrax was rampant; the company’s product seemed perfectly timed. But market interest in anthrax was fleeting, and six months later, Baker’s team was busy introducing a treatment for nail fungus. “You can’t live on your precon- ceptions,” says Baker, who didn’t look back when anthrax faded from the pub- lic eye. Neither can you be “enamored” with your own vision or technology, adds Rick Sine, who wrote this issue’s cover story on competitive intelligence. The moral, as Baker and a host of 2 risks&rewards other tech heroes who tell their stories in this issue attest, is to watch for what Why Silicon Valley Endures Plus: Why an energy company is pushing CI guru Ben Gilad calls “a strategic for more environmental regulations; the limits of negative advertising; change in the market”—and to be will- the risks of stock options; the rules of war games; an entrepreneur shifts ing to change along with it. his focus from anthrax to nail fungus; and small companies turn to M&A

8 COVER STORY Spy v. Spy What you need to know about your competitors—and what they’re learning about you. Plus: What employees can share when they leave; keeping corporate confidences; and corporate counterintelligence Fall/Winter 2006 A Custom Publication Produced for 14 interview Goodwin Procter LLP ITA Software’s Jeremy Wertheimer “We certainly faced by Leverage Media LLC computational challenges, but nothing in terms of a cri- Dobbs Ferry, NY sis of faith—we were computer scientists; these were math problems to solve” Editor: Michael Winkleman Art Director: Carole Erger-Fass 16 TECH4TECH Production Director: Rosemary P. Sullivan Making Your Own Power Plus: VoIP goes wire- Copy Editor: Betty Pellet less; streamlining the code-base checking process; Cover Photo: Chip Simons treating conferencing like email; collaborating with avatars; designing for success; and five good reads © copyright 2006 by Goodwin Procter LLP. 20 a look back All rights reserved. The Soviet Silicon Valley After passing a host of key U.S. documents to the USSR, two Americans fled to Russia, where they convinced the Soviets to build a secret city dedicated to “microelectronics.”

Goodwin Procter Offices Boston Los Angeles New York San Francisco Washington, DC Exchange Place, 53 State Street 10250 Constellation Boulevard, 599 Lexington Avenue 101 California Street 901 New York Avenue NW Boston, MA 02109 21st Floor New York, NY 10022 San Francisco, CA 94111 Washington, DC 20001 617-570-1000 Los Angeles, CA 90067 212-813-8800 415-733-6000 202-346-4000 310-788-5100

This publication may be considered advertising under the ethical rules of certain jurisdictions. risksBY PETER HAAPANIEMI AND& RICHARD SINErewards

EAST V. WEST: IMMIGRATION: WHY SILICON VALLEY ENDURES The Price of Security

Since 2001, security concerns have complicated staffing for U.S. companies that rely on foreign employees with key technical skills. And things are not likely to get simpler in the near future. For example, the limiting of H1-B work visas, which are granted to foreign nationals with special skills, “has become more of a political issue than a practical issue, largely because of the heightened security concerns post 9/11,” says Joe Piacquad, a part- ner at Goodwin Procter. “Also, we see that the Department of Homeland Security is enforcing its own immigration rules more closely.” For example, gaps in employment for visa holders have long been against the rules, but they were traditionally over- looked. “That doesn’t really hap- pen any more,” Piacquad says. Maybe it’s facing some competition feel more empowered about spending “We are seeing increased scrutiny these days, but Silicon Valley is main- money because they think it’s easier on things like that.” taining its position as the nation’s high- to raise it,” Schnoor says. Some of the rules are also tech capital. changing. “Congress and the So says Bill Schnoor, who’s spent  A critical mass of larger, leading Department of Homeland more than 20 years helping firms on technology companies are based in Security are adding rules incre- both coasts negotiate financing and the Valley, acting as role models as mentally,” says Piacquad. He acquisition deals. Other regions have well as acquirers for smaller firms. notes there are discussions about stolen some of the Valley’s thunder in “The availability of capital and the making a voluntary electronic recent years, notes Schnoor, a partner sense that it’s achievable to go for employee-identification program in Goodwin Procter’s Technology that kind of growth fuels higher tar- mandatory and requiring employ- Companies Group. But he can quickly gets and ambitions,” he says. While ers to use biometric identification tick off why none of them have serious- West Coast outfits still dream of techniques. Overall, he says, “the ly threatened the Valley’s position: going public, East Coast firms are trend is toward putting more of more likely to sell out after hitting the responsibility and cost for val-  The biggest sources of venture capi- the $100- to $200-million mark. idating foreign employees onto tal are headquartered in the Valley, the employer.” —P.H. and they still like to fund locally.  California has a more fluid labor “Companies in the Valley probably force, thanks to a networked culture,

2 big ideas TREND WATCH:

A More Convenient Truth 49.6

44.2

CO2 EMISSIONS 38.3 (in tons) 36.8 proximity—and the fact that non- 35.6 compete agreements aren’t $8.4 $7.9 enforceable in the state. $7.4 $7.2 Then again, East Coast firms TOTAL N O D

$6.6 R

have their advantages, Schnoor ELECTRIC A E R

REVENUE X

notes. Firms in the Northeast corri- E L (in billions) A Y

dor are well positioned to serve B T R A

New York, which is more than just 2001 2002 2003 2004 2005 H C the world’s financial capital—it also hosts the big media firms that are A big energy company comes out in favor of more environmental regula- preparing for convergence. The tions? It’s true. Entergy Corp. has filed a legal brief supporting several Northeast also boasts good schools states that are trying to force the Environmental Protection Agency to and the accompanying intellectual promulgate greenhouse gas controls under the Clean Air Act. Entergy’s ferment. approach could help shift the global warming discussion “from a polarized Other, newer hubs in places like debate between environmentalists and industry to a more substantive and Austin, Boulder, Research Triangle collaborative discussion,” says Elise Zoli, a partner at Goodwin Procter Park and Salt Lake City combine a who represents Entergy. Entergy has pledged to maintain its greenhouse lower cost of living with good quali- gas emissions at a level that is 20 percent below 2000 levels. Meanwhile, ty of life and a strong talent pool. big tech firms are falling in line: HP is auditing energy use at its 53 N N

A largest facilities and has pledged to reduce its on-site greenhouse gas

K Start-ups in these emerging hubs A I R

O can benefit from the relative scarci- emissions by 18 percent in 2006. Advanced Micro Devices, Inc., which has T C I V ty of competitors that might be designed energy-efficient computer chips, plans to reduce emissions by 40 tempted to hire away key talent. percent by 2007, relative to 2002. And Sun Microsystems, which is push- That may be a good strategy, says ing energy-efficient servers, has pledged to reduce emissions 20 percent Schnoor, but companies that locate by 2012. In April, HP, AMD, Sun and IBM formed a coalition, called the in these areas should be prepared Green Grid, which will share best practices on reducing power consump- to spend a lot of time on the road— tion in data centers. —R.S. SOURCE: ENTERGY CORP. and in many cases that road will lead to the Valley. —R.S i S E G A n M I Y T

T 4 Lessons from the Front New Markets

E 6 G ,

N Why James Baker moved from anthrax to How your VC can help you navigate the busi- s O I T C

E foot fungus ness terrain in China and India L L i O C C I d H

P Remote Locations A Section 409A R G O

E Getting serious about options The same rules may not apply G e L A N O I T A

N 5 Slamming the Competition 7 Small Companies , R I

A Is there an acquisition in your future? L Just how negative can your advertising be? B . P

Start-ups in new hubs such as Salt Lake S E M A City often lack competitors for talent. J

big ideas 3 risks&rewards

IF I HAD IT TO DO OVER… Products and Persistence

BY JAMES BAKER, JR. So we really ran in that direction. human therapeutics, including a treat- Unfortunately, it didn’t last; six ment for nail fungus. That may not be In addition to heading up the months later, there wasn’t much inter- as high profile as anthrax decontamina- Nanotechnology Institute at the est in anthrax. We wound up going tion, but nail fungus is a problem that University of Michigan, Dr. James back to our original goal of developing affects a lot of people, and there Baker, Jr. is chairman and chief scien- tific officer of NanoBio, an Ann Arbor, Michigan-based pharmaceutical com- pany. NanoBio is developing treat- ments for a variety of diseases and recently completed a $30 million round of financing.

At NanoBio, we tried a few things along the way that didn’t work out, but those experiences taught us some valuable lessons. For me, No. 1 on that list is that you can’t live on your preconceptions. You really need to have something the market wants. Right around the time that NanoBio was launched, the 9/11 attacks took place. We had a technology for anthrax decontamination, and of course we got incredible press and attention around that. The company was N

only three months old when we wound H G U A up with a spread in Fortune magazine. V E O J Y B O T O H P

SECTION 409A: Goodwin Procter. those options will be taxed upon vest- Get Reasonable! Although that law has been in ing, rather than when they are exer- place since last year, some companies cised, and the employees will be sub- are still not doing a third-party ject to an additional 20 percent tax— Traditionally, when a private company appraisal or a more formal, analytical turning options into a burden. granted stock options to employees, determination, Tse says. Often, that’s The IRS is not the only threat. the board made a good faith determi- because they want to avoid the “There is a real risk that when it comes nation of the value of the common expense of an independent appraisal time to sell your company, the buyer stock. But under Section 409A of the or the hassle of having an internal will scrutinize this issue, especially if Internal Revenue Code, that’s no expert—such as a board member— there was no outside appraisal, and longer enough. “You need to apply a prepare a detailed written analysis. may suggest that the seller fix any reasonable, accepted valuation But that could be a problem. If the potential problem,” Tse says. “That methodology to determine fair market IRS determines that stock options would mean having the employees pay value,” says Marian Tse, a partner at weren’t granted at fair market value, tax, pay a higher price for the options

4 big ideas weren’t any really effective therapies for it. And focusing on it is really help- ing us to be successful. The lesson is that you need to think about making products for a defined problem out in the marketplace—you can’t just think in terms of interesting ideas. I’ve also learned that it’s not so much perspiration, but rather persis- tence that is 90 percent of genius. You will probably run into some failures. But if you stay in there and keep push- ing, sooner or later something good will happen. That persistence, by the way, is also especially important for people in NEGATIVE ADVERTISING: academia. A lot of universities still feel that any type of commercialization HOW TO PLAY FAIR activity is counterproductive. But based on my experience and observa- You know your company’s gizmo is competitor for not offering 24/7 tions, there is great value in doing way better than the other guy’s. So support. The claim seems to imply entrepreneurial work and technology how can you show that in an adver- that you do offer 24/7 support. If transfer out of research universities. I tisement without getting into legal you don’t, a judge might conclude think that turning ideas into useful trouble? you’re being deceptive. products—for nail fungus or for any- The courts use two measures to thing else—is something that is impor- determine whether you’re playing Horwitz has advised clients on tant for society as a whole. fair, says Ethan Horwitz, chair of how to design scientifically valid Goodwin Procter’s Intellectual product tests so they’re bulletproof Property Group: against false advertising claims. He’s also conducted consumer surveys to  Literal truth. If you’re making a scope out whether an ad might give a concrete claim, it had better be false impression about a product. true, Horwitz says. “The courts It may be tempting to just run an or commit to exercising the options have said you must have proof ad and hope you’ll get away with a at a fixed date.” before you advertise.” More nebu- claim. But if that ploy fails, the Private companies contemplat- lous claims, known as “puffing,” stakes can be high. At the least, your ing an IPO in the near term should are a different matter. Say you competitor might get a swift injunc- be even more careful. “To avoid recruit Bill Gates to say your tion to quash the ad. cheap stock issue with the SEC,” product is the best he’s ever tried. If your competitor can prove that Tse says, “companies are well- Such a claim isn’t measurable and your false ad harmed its sales—or advised to engage a third-party therefore isn’t subject to false boosted your profits—a judge might appraiser to determine fair market advertising laws—assuming, of award damages and even treble dam- value for their option grants.” course, Bill Gates actually did try ages. Worst of all, if consumers bring Keep an eye on the situation, Tse (and like) your product! a class action against you, you could advises—the IRS is expected to be forced to rebate the full purchase issue final Section 409A regulations  False impression. This is a tricki- price to those who bought your prod- later this fall. —P. H . er area. Let’s say you ding your uct. —R.S.

big ideas 5 risks&rewards

VENTURING INTO CHINA AND INDIA WAR GAMES: WITH YOUR VC How they work

For young American tech firms, navi- firms to their portfolios are in a good Competitive intelligence guru Ben gating India’s and China’s business position to match the skill sets of Gilad calls war games “one of the and commercial landscapes can seem these firms to their domestic counter- most effective and sophisticated ways as treacherous as it is tempting. The parts, Fields says. And VCs that have to prioritize strategic risks (and markets are huge and the talent pools a well-established presence in Chindia opportunities).” That’s why he was vast, but the obstacles to doing busi- will be in a good position to advise you amazed to learn from a recent survey ness can be equally large. It would be on its business climate. that war games and a related strate- nice to have an ally in those countries When you’re choosing a VC, con- gy, scenario analysis, haven’t taken with a ear to the ground. How about sider how global they are, Fields root in most companies. your VC firm? advises. Investigate whether they War games are typically per- These days, venture capital and have visibility or connections in the formed by four or five teams of up to private equity are pouring into what countries you’re interested in. And ask seven managers or field employees, investment types (and Business Week whether they’ve partnered, bought or Gilad says. There are several different magazine) have increasingly termed sold firms in those countries. frameworks for the games, which typi- “Chindia.” (VC investment in the Your VC’s foreign connections cally envision a strategy several years region defined by these countries has may even prove important when it into the future. Here are a few tips on how to make a game successful: Focus on big-picture strategy. “War games aren’t set up to ask, ‘Should we put this knob on this prod- uct, or should we sell at this price point,’” says Timothy Kindler, competi- S E

G tive intelligence director at Eastman A M I

Y Kodak Co. “Instead, they should be T T E G

, focused on strategic issues like prod- N O I T uct category participation, geographic C E L L

O coverage or go-to-market plans.” C A R

O Make sure management is open R U A

, to criticism. The game will fail, Gilad S L L Rush hour in Bangalore: Indian firms E says, if employees feel they’ll be W . H

are looking for U.S. acquisitions D treated like traitors if they honestly I V A D portray their competitors. recently exceeded $1 billion annually.) comes to your exit strategy. Maybe Prepare by collecting good com- Sequoia Capital, for example, has you’re eyeing a VC firm today petitive intelligence (for more on CI, opened offices in both countries, while because it’s shepherded startups into see “Spy v. Spy” on page 8 of this other VCs are partnering with local the arms of a Cisco or Microsoft. But issue of Big Ideas in Technology). firms. These VCs can act as a van- what about India’s Infosys or China’s Make sure you have solid intelligence guard for American firms seeking Lenovo? As Lenovo’s $1.25 billion on your competitor’s culture, says opportunities, says Kathy Fields, an acquisition of IBM’s PC business Mark Chodnowsky, who runs war acquisitions specialist at Goodwin illustrates, these companies’ appetites games for major companies as head Procter. for American acquisitions are growing of the Technology and Manufacturing In addition to liquidity, VCs are quickly. Practice at Cambridge, offering Chindia firms the same net- “Don’t just think about what’s Massachusetts-based Fuld & Co. “We working, management and marketing going on in Silicon Valley,” Fields look at organizational structure and support that they have long offered advises. “Think about Bangalore, the personality of key executives,” American firms. VCs that add Chindia Shanghai and even Budapest.” —R.S. Chodnowsky says. —R.S.

6 big ideas Remote Locations: Growing Smart

For a growing company, counsel at Lionbridge won’t get the benefit of a global opening a new office in Technologies, a Waltham, enterprise,” says Kevin Bolen, chief another country can be a Massachusetts-based marketing officer at Lionbridge. very big milestone—but it provider of globalization and Companies need to formally deter- can also make life more outsourcing services. For mine up front how to strike the right complicated. example, she explains, pay balance—which entity will be respon- “There are a lot of raises and severance may sible for what—and put it in writing. challenges that companies actually be determined by need to consider as they legal statute, while laying  Structured communication. “You start to expand,” says Ken Gordon, a employees off can be very difficult have to make a conscious effort to partner at Goodwin Procter. “For and expensive in many countries. keep remote offices informed; example, you need to make sure you they’re not going to hear about have adequate information systems and  Incentive and retention programs. things in the hallway or waiting for a controls for legal, finance and HR func- People in different countries have meeting outside the conference tions, which can be more difficult as different views of work and career room,” says Bolen. For smaller com- you open remote offices. Those controls paths. “In one location, they may panies accustomed to having all their are especially important if you have value promotion and frequent rota- employees in one place, that means aspirations of becoming a public com- tions to new jobs, while in another, bringing a greater degree of formali- pany, and you need to think about they may want to get deeper into the ty to communications and scheduling Sarbanes-Oxley compliance.” job they have,” says Shukur. Also, frequent interactions via phone, Beyond the extended operational she says, stock options are an inef- email, videoconference and face-to- infrastructure, companies should con- fective incentive in some countries face meetings. Communication sider a variety of factors as they begin due to cultural and tax factors. should be truly two-way. “Avoid the to expand, including: intellectual arrogance of opening a  The balance of local and central remote office and simply expecting  Varying employment laws. While control. “Trying to re-create the them to do what you tell them,” U.S. companies are generally free to headquarters office in another coun- Bolen says. “Look for their input employ people as they see fit, “that is try usually doesn’t work. But you about the business as a whole; good not always the case in other coun- also can’t let that overseas office be ideas can come from anywhere, not tries,” says Peggy Shukur, general totally autonomous because you just the home office.” —P.H. SMALL COMPANIES: TIME TO ACQUIRE?

Today, small private companies that says. Interest rates have crept up appeal it once had. “There are still want to accelerate their growth should recently, but are still fairly low. And, he IPOs, of course, but the market isn’t as consider an approach that’s usually says, “there is also a lot of private equi- frothy as it was awhile back,” says associated with large corporations— ty that is willing to invest in companies Johnson. But it’s not just the money, he acquisitions. “A number of factors are that have a vision for growth that they adds: “I think entrepreneurs and coming together to make growth can believe in.” At the same time, founders are thinking hard about what through acquisition more appealing for acquisitions currently represent some- it means to be a public company, and these companies,” says Joe Johnson, a thing of a buyer’s market, with compa- dealing with things like Sarbanes-Oxley partner at Goodwin Procter. ny prices being generally lower than and stock option and executive compen- One of those factors is the availabil- they were a few years ago. sation issues. If you are looking to take ity of money. “It’s relatively easy for a Finally, potential acquisition targets your chips off the table, all of that can smaller private company to raise funds are finding that the idea of going pub- make a sale to another private compa- to do a transaction right now,” Johnson lic—as opposed to selling—lacks the ny look a lot more attractive.” —P.H.

big ideas 7 cover story

What you should know about your competitors... and what they’re learning about you

8 big ideas BY RICHARD SINE

There’s a lot to like about this girl you met at your favorite Palo Alto watering hole. She’s cute, of course. She seems to know what she wants—walked right up and introduced herself. And here’s the really shock- SPY ing thing: When you tell her what you do, her eyes don’t get glassy. On the con- trary, she seems fascinated. She begins peppering you with questions—What exactly does your product do? When will it come out? Who wants to buy it?

Two or three gin-and-tonics later, you’re telling her things you thought no one would ever be interested in. She’s eating it up. And possibly recording it as well. The scenario—though possible— is unlikely. The approximately 7,000 professionals who engage in the craft of competitive intelligence, both inside companies and as consul- tants, have a code that would forbid this approach. But those same pro- . fessionals have a message for the v tech industry: In all likelihood, your competitors are right now trying to gather information on you in any (usually legal) way they can. And SPY they could be preying on you or your

PHOTOS BY CHIP SIMONS Watching a competitor is almost a complete waste of resources, if you aren’t watching the market. employees’ vulnerabilities in ways not too different from that ers and thinkers on competitive intelligence (or CI), as well girl in the bar. (More on this later, when we examine the tech- as top CI managers at major tech firms. niques used by the pros.) The message the pros are sending, however, goes beyond What kind of intelligence do you need? just instilling paranoia. Understanding current and potential competitors and anticipating market trends, they say, are Many people mistake CI for industrial espionage, the gather- vital to your company’s survival. You must fully understand ing of trade secrets through bribery, blackmail or other chi- the risks competitors pose to your firm’s competitive advan- canery. While espionage does occur, a well-publicized case tage—or that advantage won’t last for long. over the summer showed how foolish an endeavor it is. In The message may seem obvious. After all, you’ve been that case, an administrative assistant at Coca-Cola offered to keeping an eye on your competitors and markets for years— sell PepsiCo samples of a new Coke drink. Wishing to remain reading the trades, scanning the Internet, networking with untarnished, Pepsi promptly informed Coca-Cola of the rat in colleagues. But with the overflow of marketplace data we’re their midst. Federal law enforcement later arrested the all swamped with, it can be hard to separate the wheat from woman after conducting a sting operation. the chaff. And once you do find really useful competitive The legal and ethical gathering and analysis of CI, by information, it can be hard to get the right people to listen— contrast, can give useful insights at the tactical, operational especially if you work at a large, insular firm or with entre- or strategic level. A recent Business Week article, for exam- preneurs who are enamored with their vision or technology. ple, describes how an electronics distributor predicted that So, how to find the good stuff without crossing ethical or four rivals would soon be out of business. Armed with this legal lines? And how to make sure it makes a difference at knowledge, the distributor stayed on the sidelines as the your company? We asked some of the world’s leading teach- doomed competitors engaged in a crippling price war.

LET’S MAKE A DEAL

Employment contracts and com- couple of the more common agreements: may be under the mistaken impression petitive intelligence Confidentiality and invention that these agreements aren’t really assignment agreements tend to be stan- enforceable, says Wilfred J. Benoit, Jr., a In today’s revived tech industry, talent is dard. Yet “it’s amazing how many com- partner in Goodwin Procter’s Labor and the hottest commodity. The information panies either have no agreements at all, Employment practice. Employees should that can make or break many firms or the agreements aren’t well written,” try to negotiate an adjustment in the resides in the heads of just a few says Steve Charkoudian, a partner in agreement if they can’t abide by it. employees. No wonder firms try to Goodwin Procter’s Business Law If you’re an employer, be judicious ensure that their sensitive data is pro- Department. Some firms’ agreements in your use of the noncompete. While tected at the outset of their relationship lack key protective provisions, he says, the contracts may be standard for top with a new employee. while others overreach. executives, they may be harder to justify Yet this key step is often skirted Noncompete agreements are for employees lower down, Charkoudian over as “just paperwork” during the designed to prevent firms from stealing says. When you do use a noncompete, excitement of a new hire. Employees and trade secrets by stealing away a com- avoid using a form agreement, Benoit employers need to pay more attention to petitor’s employees. These agreements adds. Instead, tailor it to the circum- this step to avoid legal hassles and keep can restrict where ex-employees may stances. Excessively restrictive agree- their competitive information secret. A work for several years. Some employees ments are less likely to be enforceable.

10 big ideas But before you start gathering CI in can be used when making big decisions,” says earnest, try answering this deceptively simple Joe Goldberg, senior director of corporate question: Who are your competitors? business intelligence at Motorola. If you’re Coca-Cola or General Motors, the Goldberg—who is, like some CI specialists, answer is pretty clear. But for tech firms in a former CIA operative—says Motorola was markets that are new or highly dynamic, the the first corporate firm in America to organize its answer can be murkier, notes John Egan, a partner own professional intelligence unit. Ask him to give in Goodwin Procter’s Technology Companies Group. examples of how CI has factored in some of those big “Until the marketplace is defined, you may find yourself com- decisions he mentions, and he demurs. What he could point peting with people you didn’t think of as competitors.” you to—though he avoids the specifics—is how CI has pre- Indeed, in the “co-opetitive” world of technology, firms vented Motorola from making bad decisions. “Sometimes, we that are rivals today may be partners tomorrow. Or they may find out companies have done things we don’t want to be asso- be rivals, partners, vendors and suppliers all at once. ciated with,” he says. So the big decision, Egan says, isn’t necessarily how to Similarly, at Eastman Kodak Co., competitive intelligence beat the other guy, but what kind of relationship to build with director Timothy Kindler says he strives to compare a com- him—the classic build, buy or partner decision that tech firms petitor’s stated intent with reality. “We match up the strate- face every day. gy—what a company says it will do—with its ability to exe- And for these decisions, good intelligence is crucial. Small cute that strategy based on its financial position, its talent firms, for example, might gather CI to find out which big pool, its intellectual property position and its product portfo- guys could be interested in buying or licensing their product, lio. Sometimes the disconnect between aspirations and capa- or whether they plan to build a competing product in-house bilities can be striking. What they have done in the past can instead. If a big firm is interested in your product, there are be a predictor for what they will do in the future.” more questions that CI can help answer, Egan says. For But CI must be used to monitor markets as well as com- example, you can get clues about how prepared (or even will- petitors, says Ben Gilad, president of the Fuld-Gilad-Herring ing) its sales force is to sell that product. Academy of Competitive Intelligence in Cambridge, Many big firms have well-established CI units for which Massachusetts. “Watching a competitor is an almost com- vetting potential partners is a high priority. “If you can deter- pletely useless waste of resources,” Gilad says. “It means mine the strategic intent of a firm, if you can see how they anytime there’s a strategic change in the market, you’ll be the treat their other partners and if you can get insight into the last to get it because you will only see it when your competi- personality of the leadership, that all fits into a mosaic that tors react to it.”

DON’T BREAK THE DEAL

What can employees share when Everyone knows it’s against the law ities of the players and the way decisions they leave? to steal a former employer’s trade were made,” CI guru Ben Gilad says. secrets. But many people aren’t aware Many firms routinely extract such Former employees can be a goldmine for how broad a category that is. “Any infor- information. Joe Goldberg, CI chief at those who seek competitive intelligence. mation that gives a company a competi- Motorola, says his firm has acquired But sharing information about your old tive advantage, and that the company many employees from competitors over employer—or trying to elicit any infor- has taken steps to keep confidential, is a the years. Goldberg asks these employ- mation about a company from a former trade secret,” Charkoudian says. That ees about their former employer’s culture employee—can be a dangerous game. includes not only source code or other and leadership and to react to new infor- Employees sign various agreements technical data but also product mation about those competitors. that control what they can do when they roadmaps and strategic information. But that dialogue strikes leave. Enforceability varies by state, so Many CI experts still believe firms Charkoudian as potentially risky. Sharing good legal advice is key. But generally, could be more aggressive in questioning “general industry know-how” is OK, he when you leave a job, it’s best to take their competitors’ former employees. says. So is making conjectures. But if an nothing but personal effects, suggests “Confidentiality agreements don’t forbid employee really knows why his former Steve Charkoudian, a partner in Goodwin former employees from talking about the firm made a decision—or what it plans to Procter’s Business Law Department. culture of the organization, the personal- do next—then it’s don’t ask, don’t tell.

big ideas 11 Using CI as a Crystal Ball “When PeopleSoft made its bid, he was pre- pared to act aggressively.” Ellison’s move, There are plenty of other wrong ways to gath- scorned at first, is now seen as prescient. er competitive intelligence, Gilad says. CI that is gathered indiscriminately will likely never be Finding the Good Stuff used. And CI is too often gathered to reinforce decisions that have effectively already been made. So, you’ve identified the competitor moves and the The goal of CI, Gilad says, should be to open minds, not market trends you want to monitor in order to secure win internal battles. And for that, a framework is needed for and extend your competitive advantage. Are you ready for gathering and analyzing CI. the fun part? Are you ready for a visit with Q, who will supply Gilad is a pioneer in developing the “early warning” you with the booby-trapped briefcase catches or the shoe framework, the aim of which is to help firms stay ahead of the camera that will launch your career as a corporate spy? sort of seismic industry shifts that have hobbled companies Not so fast. Many of the pieces of the puzzle you’re trying big and small in the past. (Think about how Kodak struggled to fill in will come from sources hidden in plain sight. You’ll with the emergence of digital photography or how Sun learn a lot simply by networking with the right industry fig- Microsystems has fought to adjust to open-source software.) ures, says Goodwin Procter’s Egan. Among the key players: The framework dictates a process that begins with under- Many larger tech firms have venture coordinators or standing your own firm’s competitive advantage. Then you facilitators, Egan notes. They’re a key source for small identify and prioritize current and potential risks to that firms, because it’s their job to give clues about their firm’s advantage. Finally, you agree on specific indicators in the product roadmap and what it plans to build, buy or achieve external environment (whether market- or competitor-relat- through a partnership. ed) in which those risks are emerging. (For example, an indi- Investment bankers, especially at mid-tier firms such as cator for Kodak could have been: How many digital cameras S.G. Cowan, are well-networked and tend to know what large have been sold? An indicator for Sun: Which software devel- firms are looking for. opers are joining the Linux community?) Your CI gathering IT analysts such as Gartner may charge for their services will focus on those indicators. In his 2004 book, Early or reports, but they can provide insightful market analysis. Grappling with a handful of possible futures based on current trends pushes thinking past the spreadsheet

Warning: Using Competitive Intelligence to Anticipate Venture capitalists can be a good source of information Market Shifts, Control Risk and Create Powerful Strategies, on market trends. Often they are directors of major firms or Gilad outlines the full early-warning loop, from risk identifica- have advisory boards composed of CIOs of major firms. tion to monitoring to management action. Document-based sources can be useful. They include: Another such framework is scenario analysis. “Scenarios The Web: “Things like plans or schematics would have are an eye-opening and powerful intelligence tool,” says taken forever for us to get in the past,” said Richard Combs, Leonard Fuld, author of The Secret Language of Competitive a CI professional. “Now they’re right out there on the Web.” Intelligence and a cofounder of the Fuld-Gilad-Herring Paid databases such as Lexis/Nexis or Dow Jones: Their Academy. Grappling with a handful of possible futures based information is generally more reliable than what is found by on current trends, Fuld says, can lend discipline to the slip- trolling the blogs and chat rooms. pery job of discussing the future and help executives think Government documents: Companies must often make beyond the spreadsheet when making strategic decisions. useful information public when they apply for permits or com- Fuld credits savvy use of scenario analysis for prompting ply with regulatory reporting requirements, CI experts say. Larry Ellison’s acquisition of PeopleSoft in 2003. Fuld notes Trade shows are also fertile ground. that Ellison made his acquisition offer less than a week after But while useful, these sources may not provide you with PeopleSoft made its offer for J.D. Edwards. Thanks to sce- the current, in-depth information on a firm’s operations or nario analysis, Ellison had identified PeopleSoft’s move as a finances that you really need. For that kind of inside skinny, “triggering event” for a wave of consolidation in the database you may need a CI professional—in other words, a spy. space. “He had these scenarios in his back pocket,” Fuld says. Former librarians, journalists, accountants or even gov-

12 big ideas ernment “spooks,” many competitive intelligence profession- that employs you and fire away. If you’re asked who is spon- als are masters at deducing financial, operational or strategic soring the research, respond that you’re not allowed to dis- information based on just a handful of clues. For example, close that information. Arik Johnson, managing director of Wisconsin-based CI firm Sounds like an invitation to have the door slammed in Aurora WDC, can help his clients divine how much it costs a your face? You’d be surprised. CI professionals are experts at competitor to produce a circuit. His tools: industry know-how, seeking out the disgruntled, the vain, the guileless—people publicly available information—and a few questions to well- who are all too pleased to share their expertise. placed sources. Not all such information may be perfectly reliable, but Johnson compares the process of gathering so-called enough of it may fill in a few of the dots in what Fuld calls the “human intelligence” to investigative journalism. He’ll grill a “pointillist painting” that competitive intelligence provides. company’s suppliers, distributors, customers, consultants, Think about the girl at the bar described at the beginning regulators, current and former employees, and so on. of this story. Imagine she had asked the same questions as Most CI professionals are members of the Society of before, but said they were on behalf of some research firm Competitive Intelligence Professionals, which forbids its you’d never heard of. Your pride in your job might inspire you members from misrepresenting themselves. Their technique to answer her questions without much thought. A better idea is simple: Approach your target, identify the intelligence firm might be to answer with a few probing questions of your own.

DEFENDING YOUR CASTLE

Competitive intelligence profession- als—like police detectives, journalists or scheming lovers—know that bribes or blackmail aren’t necessary to pry useful information from people. Vanity, pride, carelessness, boredom, dissatis- faction or just plain old common cour- tesy can be powerful motivators as well. “People like to be nice to peo- ple,” says Richard Combs, a Chicago- based CI consultant. “They like to explain things.” While many technology executives are familiar with the measures needed to protect their companies from hack- ers, they may be less familiar with how to prevent competitors from hacking their own employees’ brains. Thankfully, many CI pros also assist in counterintelligence—that is, defending your company from people like them- selves. Combs, for example, performs “mirror projects,” in which he gathers CI from a client company to see how vulnerable it is to leaks. for a living knows there are others that necessary to promote the business and Counterintelligence is a daily part are looking at your company,” Kindler serve the shareholders. Publicly traded of the job for Timothy Kindler, competi- says. “So you need to make sure that companies—including Kodak’s com- tive intelligence director at Eastman everyone in your company knows peo- petitors—“tend to over-disclose,” he Kodak. In part, it’s as simple as advis- ple are doing that kind of thing.” says. “Companies need to think about ing employees not to talk to just any- Kindler also tries to ensure that how to discuss the good things without one who calls. “Everyone who does CI Kodak doesn’t disclose more than is disclosing unnecessary information.”

big ideas 13 interview JEREMY WERTHEIMER, CEO, ITA SOFTWARE

While pursuing his doctorate in com- How did you size up the opportunity?

puter science at MIT in the early ’90s, The airline industry was appealing because of its critical dependence on computer Jeremy Wertheimer took breaks in the systems, which were based on much of the technology we were studying at MIT, Wform of his “thesis avoidance project.” and I saw the opportunity to tackle a business problem and science challenge con- fronting the industry. Airline tickets, fundamentally, are perishable products—the Hardly a procrastination, though, his idea is to maximize revenue and minimize waste by dynamically adjusting ticket diversion involved studying the complex offerings. Deregulation in the late ’70s gave consumers enormous flexibility in route algorithms of airline ticketing systems. and fare shopping. Yet, in 1992, a handful of companies using vintage mainframes were still handling every single ticket price look-up and purchase, making billions in A student and devotee of large-scale transaction fees. Airlines and consumers needed a new solution—in the emerging computing, Wertheimer took notice PC and Internet age, selling tickets via the Web made perfect sense. when a travel agent friend introduced How did you go about gaining entry into the market? him to the Sabre airline reservation Starting out, we said, “Let’s try this out, let’s see if we can build new systems for an system. “Sabre was a technological and industry that hasn’t seen significant new product development in 30 years.” With commercial breakthrough when intro- just a few friends and a few computers to support, we got by on bootstrapping and family contributions. There was no competitive pressure, either. The idea of duced in the ’60s,” he explains, “but attempting to separate the industry away from that legacy infrastructure was basi- what really intrigued me was that in cally unthinkable, the assumption being that you had to be savvy about the industry the dynamic, complex airline industry and invest billions of dollars. We certainly faced computational challenges, but noth- ing in terms of a crisis of faith—we were computer scientists; these were math of the ’90s, Sabre’s mainframe-based problems to solve; and the intangibility of it all diminished the sense of risk. I even system technology was still the state of joked with my venture capitalist friends that we weren’t risky enough for them. the art in travel planning. The condi- At our first product demos, people were amazed to see mainframe processing on a small computer. Lacking comparative technologies, though, the industry initially tions were ripe for a fresh approach.” did not know how to evaluate us. Market recognition and customers soon followed, Wertheimer acted on his intrigue, though, built on our evolving reputation of success with these mission-critical sys- building prototypes while at MIT and tems. Satisfied customers keep you in business—and our products benefit millions of travelers. forming ITA Software in 1996. Today, if you buy tickets online, it’s a safe bet Five strong in 1998, today you are 250—how do you keep your people satisfied? you’re using the company’s QPX The market wants responsive, reliable people who deliver great solutions and stand search-and-compare software, which by their work. We have always selected people who identify with getting product out powers the websites of key players like the door. The early days taught me about the responsibilities of employing people; Continental Airlines and Orbitz. On today, one key focus is keeping the risk-quotient up, to push innovation and success even higher. The computer scientists who work here could just as easily be across the heels of a recent $100 million fund- the street at MIT; we have fostered within the company a technical community ing, Wertheimer spoke to Big Ideas in where people can feel proud of their accomplishments. Technology. —Jeff Heilman We also value people’s outside lives and interests. We recently sponsored a Battle of the Bands competition, recognizing the many talented musicians working at ITA and other Boston-area technology companies. We just want to be innovative, PHOTO BY FRANK RAPP work hard, be successful and have fun.

14 big ideas By the 1990s, says Jeremy Wertheimer, conditions in the “dynamic, complex airline industry” were “ripe for a fresh approach.” Today, if you buy tickets online, you’re sampling ITA’s software.

““WeWe certainly faced computational challenges, but nothing in terms of a crisis of faith...” tech4tech BY AARON DALTON

1ONE COMPANY’S STORY More and more companies are finding that their success depends upon their figuring out how to allow large, geo- graphically dispersed groups of employ- The convergence of ees to collaborate effectively. The out- mobile communications and Internet sourcing and offshoring of many manu- telephony is coming quickly. While facturing and support roles has meant Voice over Internet Protocol (VoIP) that workforces are frequently located technology has recently enjoyed wide- in different time zones and on different spread adoption in the home and, continents. Some companies have increasingly, the office, the growing adopted a follow-the-sun approach reach of wireless Internet networks will through which a project is handed from soon make the same technology feasible one team to the next in sync with the for mobile communications. Nokia sun’s movements so that as one office may be at the forefront of this trend finishes its day, work can continue in an with a device called the 770 Internet office where the sun is just rising. Tablet, an 8.1 ounce device that pro- Cambridge, Massachusetts-based vides WiFi Internet connectivity and Interwise (www.interwise.com), real- comes loaded with Google Talk, which ized that the costs of telephone commu- facilitates VoIP wireless calling. nication were impeding the flow of Another product in the pipeline for this information among far-flung worker fall, the Nokia 6136, can actually groups. Although Web-conferencing switch seamlessly between cellular and platforms such as WebEx® could help, WiFi networks without dropping a call. those platforms didn’t have a critical, built-in voice component. face is both intuitive and fun in a way So Interwise developed the miss- reminiscent of Apple iconography.

e ing link—software that enabled inte- Interwise conference participants can 17 Learning from History Lincoln, King and Sun Tzu raise the bar grated, seamless voice and data com- “raise their hands” when they have d for tech executives munication. The goal: “We want to something to say or send IM-style i treat conferencing like email,” says notes to each other either privately or

s Interwise CFO Stephen Gregorio. for the entire group. 18 Beyond the Power Grid Making your own energy “Let everyone use it whenever they Big companies such as SAP and n want to enhance the ability of employ- Nestle have bought into Interwise’s i Design for Living ees to collaborate.” communications technology, installing Secrets of longevity in the life sciences The voice component of Interwise is the software on tens of thousands of technology agnostic, meshing naturally desktops in order to achieve both cost with Voice over Internet Protocol savings and productivity gains. 19 What's Next? Hot spots and avatars (VoIP) while at the same time convert- A privately held, venture-backed ing traditional landline signals into digi- company, Interwise started out 10 tal Internet Protocol format. The inter- years ago in Israel and still maintains

16 big ideas What I’m Reading

Robert Monroe—associate professor, IT and computer science, Tepper School of Business at Carnegie Mellon “The Design of Things to Come: How Ordinary People Create Extraordinary Products by Craig M. Vogel, Jonathan Cagan and Peter Boatwright makes the case for the importance of design and innovation in creating successful products and ser- vices. Innovation, the authors argue, is not just a process in which a lone genius searches for years for a Eureka! moment. Rather, an organization can greatly improve its success at developing successful and innovative products by following some straightforward process- es that force a focus on what their customers value and meet needs the customers might not even recognize they have.”

Ethan Horwitz—partner, Goodwin Procter “An interesting view of how to manage people is Doris Kearns Goodwin’s Team of Rivals. This is the story of how several people who ran against Abraham Lincoln ended up in his cabi- net. He chose the best people for the job instead of just taking his people. In Pillar of Fire, the second book in Taylor Branch’s trilogy about the Civil Rights movement, Branch describes the internal strife between a group led by Martin M O C .

S Luther King, Jr., the traditional church leadership and the E G A

M Black Muslims. King harnessed popular desires for change in I / G N

A the black community and orchestrated the change they sought.” Y S E M A J Bryan Lord—general counsel and vice president of cor- © porate development and administration, Amberwave R&D facilities there. In 2001, however, “Intellectual Property for Managers and Investors by Steve an investor asked the company to rein- Frank, a partner at Goodwin Procter, is a practical, readable corporate in the United States. After introduction for the non-lawyer to an often-mystifying area. reincorporating in Delaware as a U.S.- Important but difficult topics, such as how to set a royalty rate, based operational and holding company, are treated with humor and respect for the reader’s time. It’s says Gregorio, Interwise was able to not IP for Dummies or IP for Lawyers; it’s IP for Business.” put in place the pieces it needed to get Kevin Mulvaney—professor of entrepreneurial studies, critical funding. focusing on mergers and acquisitions, Babson College All this financing over all these years, however, created a complicated “I always recommend Sun Tzu’s The Art of War to my classes. It capital structure full of stockholder teaches you to think about how your competitor might act—and nuances. To simplify that structure, the what your reaction might be to his action—in more than just company has recently completed a one dimension. In an M&A deal you can’t just sit and listen to recapitalization and related financing, the various parties. You have to think about how it all comes priming the company, Gregorio together. The concepts here are extremely relevant to compe- believes, for future growth. tition, to winning market share—to winning in general.”

big ideas 17 tech4tech LIFE SCIENCES: Design for Living MAKING YOUR OWN POWER

It is no longer enough for a medical device to be effective, it must also be It’s no secret that the power demand is urban areas, without ready space for a well designed, says Goodwin Procter rising across the U.S. and that in some power plant. However, the market has partner Ray Zemlin. areas power supply is becoming responded with more compact units Consider Massachusetts-based increasingly shaky. The summer of 2006 that can be configured to meet the Insulet Corporation, whose saw residents in St. Louis and some needs of health care facilities and OmniPod Insulin Management areas of Queens, New York, lose power research institutes. Power plant config- System won a Medical Design for days at a time. Less severe black- uration and sizing have made signifi- Excellence Award this year. The outs hit overburdened power grids in cant advances in their design to encour- small pod can be applied anywhere Chicago and Los Angeles. age flexibility and simplicity, says Zoli. on the body through which a subcu- For hospitals, health care and Until recently, many hospitals taneous needle delivers the insulin research facilities, losing power is not viewed building and operating a power in a method customized by the user an option. Of course, hospitals have generating facility as a distraction from and monitored through a wireless long had emergency generators for health care. For this reason, partner- device similar to a PDA. “The short-term essentials, but Elise Zoli, a ships between qualified energy develop- insulin goes into the body without partner at Goodwin Procter, says that ers and end users work well. To ensure interfering with the patient’s daily that such partnerships are profitable activities,” says Zemlin. “It makes Electricity: Demand Outstrips Supply and successful for all involved, Zoli says living with diabetes much simpler.” 6000 back-up energy supply must be well Similarly, a firm called

) understood and standby charges for Medwave has developed a 7-ounce s 5000 n

o the supply should be negotiated with sensor-based blood pressure moni- i l l i 4000 the local distribution company or utility. toring device that sits on the wrist b n i This is particularly critical, she says, and provides a measurement in ( 3000 S for facilities with high reliability con- just 15 seconds, four times faster 9 9 8 3 4 3 1 9 5 8 0 3 R 1 6 0 9 4 7 9 9 5 6 4 7 H 2000 6 4 2 0 8 4 4 7 1 1 8 8 cerns. than its predecessor, the 100-year- 5 5 5 5 4 4 4 4 4 4 3 3 W

K From a technology standpoint, old arm cuff. 1000 many choose gas-fired turbines. While In both cases, computerization 0 renewable energy alternatives have and miniaturization technologies 2005 2010 2015 2020 2025 2030 sparked interest, they have proven played a key role. Medwave relies Supply: Net electric power available to the Grid Demand: Electricity sales, total consumption unsuitable for most facilities with high on patented algorithms that tell the reliability needs. On deals where Zoli device how to accurately obtain SOURCE: ANNUAL ENERGY OUTLOOK 2006, ENERGY INFORMATION ADMINISTRATION has had input, she has generally sug- blood pressure data from a wrist many of the hospitals in her area are gested that technical consultants con- measurement. Insulet had to devel- building, investing in or at least consid- sider installing oversized units to allow op an automated production line ering distributed- or self-generation for the long-term growth of the facility that can produce an OmniPod every projects. Self-generation involves a and its attendant power needs, with the six seconds. business operating its own power plant; sale of surplus power back to the utility Zemlin notes that success in life in a distributed-generation situation, a until long-term build-out capacity is sciences depends on a confluence of company may rely on a nearby power reached. factors: applying the latest technolo- station owned by a third-party Rising demand for power and con- gies to effectively treat a condition provider. cerns over reliability have created or provide an accurate measure- In the past, hospitals faced institu- opportunities in project development ment, delivering a device via a cus- tional and logistical challenges in imple- for specialized facilities with high-relia- tomer-driven platform that simpli-

N fies a patient’s life or helps a health O menting such programs. The major bility needs. Research facilities and D R A

E problem was that the facilities that face hospitals certainly fit into this category, professional do her job faster and R X E

L the greatest energy constraints, and but Zoli suggests that the scope of the more easily, and reaching a large A Y B

T therefore could benefit most from self- market is likely to expand to industrial marketplace with significant cus- R A H

C generation, are often located in dense and residential uses as well. tomer needs.

18 big ideas EMERGING LEGAL ISSUES Check code bases early—and often.

Background: Many corporations used from Black Duck Software to scan the advantage of open source software to avoid open source software as if it software code base. These tools review while instituting processes that help were radioactive, says Mark Macenka, source code and produce reports that them become comfortable that they are a partner at Goodwin Procter. They show whether any code is covered by using it appropriately. While not a sub- worried that if they used the compo- licenses that conflict with the stitute for clear employee communica- nents improperly they might have to software’s intended use. tion and training, regular use of disclose the proprietary software code Software companies code checking software during they had spent tens of millions of dol- also can use these nightly code compilations can lars building. Now, he says, corpora- tools as part of their help companies find pieces tions realize they cut costs and speed software develop- of open source code that vio- time to market by building software on ment process, to late internal guidelines as a base that has already been vetted by help them manage soon as they are added to the hundreds of programmers. their code day-to-day, code base, so the improper

and prepare for any code can be identified and M O C .

Case in Point: Before signing off on an potential due diligence review. removed. Checking early and often S E G A M acquisition or investing VC money in a can help find a mistake long before I / Y K S software company, acquirers and Lesson: Companies can the program is released and licensed T I N L E

investors often use tools like ProtexIP use these tools to take to customers. P O K R O G I © On My Radar Screen

THE PREDICTIONS term trend will be for ing it harder to attract talent with collaboration plat- tougher immigration policies and other Medical treatments forms that weave disincentives. While technology makes “Genetic microarrays are a diagnostic together all forms of it easier to access these new talent technology that uses the basic tech- collaboration—syn- pools in the short run, over the niques of microchip fabrication, attach- chronous technologies long term we’ll lose our grip on ing small fragments of genetic material such as Web meetings, VoIP, innovation. Can we afford to to the substrate. When these pieces video calls and IMing plus asynchro- only give lip service to gov- come into contact with complementary nous forms of communication such as ernment incentives to pieces of material, they fluoresce discussion boards, blogs and wikis. The promote technology under certain light. long-term trend is in the gaming world, adoption? Wouldn’t we Microarrays now character- in environments like Second Life, rather see that expertise ize disease subtypes more where avatar technologies are taking developed here and export- specifically, but may soon shape.” —Bruck ed abroad?” —Lehman identify treatments to which you are likely to respond. The Geographic magnets THE EXPERTS long-term vision is a cocktail of “There are a number of new ‘hot spots,’ Robert Mittman leads the California- treatments that match your genetic such as Ireland, Israel, Iceland and based strategy consultancy Facilitation, O Z Z I

profile.” —Mittman India, that are becoming magnets for Foresight, Strategy. Bill Bruck is the P T R E

talent and creating entire industries. author of more than a dozen books on B O Avatars R Most of these governments had the the effective use of technology. Jon Y B S N O

“The current trend of Web-based meet- foresight to provide incentives and poli- Lehman is associate dean for health I T A R ings has no legs; no one wants to go to cies that ‘primed the pump.’ The U.S. is care at the Vanderbilt Owen Graduate T S U L L 10 more meetings a week! The short- pursuing the opposite strategy by mak- School of Management. I

big ideas 19 aa looklook backback

The Soviet Silicon Valley

Long before competitive intelligence became a formalized pro- fession with strict ethical policies, there was industrial espi- onage—illegal, dangerous and often closely allied with nation- alist aims. Working for the military and defense contractors, such as Western Electric and Sperry Gyroscope, in the 1940s, Americans Joel Barr and Alfred Sarant stole more than 9,000 pages of documents that “hastened the Red Army’s march to Berlin, jump-started its post-war development of nuclear weapons and delivery systems, and helped Communist troops in North Korea fight the American military to a standoff,” writes Steven T. Usdin, author of Engineering Communism. These two affiliates of Julius Rosenberg managed to escape Rosenberg’s fate. Instead they fled to Russia, where they convinced Nikita Khrushchev to build a secret city dedi- cated to “microelectronics”—a word Sarant had introduced into the Russian language, Usdin says. Sarant became scientif- ic director at Zelenograd, an outpost of more than 20,000 scien- tists on the outskirts of Moscow. The two men also designed a computer, dubbed the Uzel, that is still used in Russian-manu- factured submarines. —Richard Sine

COLD WAR CI: (Top) The Scientific Center at Zelenograd, HQ for the USSR’s Silicon Valley. (Inset) Joel Barr (left) and Alfred Sarant in 1944 in front of the New York apartment where they microfilmed American military secrets for the Soviets. Nikita Khrushchev and comrades meet with Barr and Sarant in the Soviet Union to learn of their enterprise in May 1962.

ILLUSTRATIONS FROM ENGINEERING COMMUNISM: HOW TWO AMERICANS SPIED FOR STALIN 20 big ideas AND FOUNDED THE SOVIET SILICON VALLEY, STEVEN T. USDIN, YALE UNIVERSITY PRESS