Debit vs. credit cards: Which is safer to swipe?

NEW YORK (CNNMoney)

That's because debit and credit cards are treated differently by consumer protection laws. Under federal law, your personal liability for fraudulent charges on a credit card can't exceed $50. But if a fraudster uses your debit card, you could be liable for $500 or more, depending on how quickly you report it.

"I know people love their debit cards. But man oh man, they are loaded with holes when it comes to fraud," said John Ulzheimer, credit expert at CreditSesame.com, a credit management website.

Related: 4 things to do after your credit card has been hacked

Plus, if someone uses your credit card, the charge is often credited back to your account immediately after it's reported, Ulzheimer said.

Yet, if a crook uses your debit card, not only can they drain your bank account, but it can take up to two weeks for the bank to investigate the fraud and reimburse your account.

"In the meantime, you might have to pay your rent, your utilities and other bills," said Beth Givens, director of the Privacy Rights Clearinghouse. The organization recommends that consumers stick to credit cards as much as possible.

Related: How not to get hacked

Whichever card you decide to swipe, here are ways to protect yourself from scammers.

Be vigilant with your accounts: The Target (TGT, Fortune 500) hack is just the latest in a long history of data breaches, and it likely won't be the last.

As a result, you should check your debit and credit account activity at least every few days and keep an eye out for any unfamiliar transactions. If you notice anything fishy, notify your bank or credit card company immediately.

"Waiting until the end of the month to check out [your] credit card statement for fraudulent use is a relic of the past," Ulzheimer said. "Fraud is a real-time crime, and we as consumers have to be constantly engaged."

Set your own fraud controls: Financial institutions have their own internal fraud controls, but some transactions can slip through the cracks, said Al Pascual, senior analyst of security risk and fraud at Javelin Strategy & Research.

Many financial institutions will let you set alerts for account transactions. Even better, some allow you to block transactions that are out of the ordinary for you, such as for online purchases at a certain kind of retailer or for any purchases over $500.

Related: Biggest credit card hacks

"We believe that consumers are going to know best as to how to protect their account," he said. "They know their own behaviors.

Watch out for fraud hotspots: You should be especially wary of using a debit card online and at retailers more vulnerable to fraud.

Gas stations and ATM machines are hotspots for so-called "skimmers," machines that scammers install to capture your card information. Watch out for ATM parts that look unusual and always cover your hand when typing your PIN in case a camera is watching, said Shirley Inscoe, a senior analyst with the Aite Group.

Don't let your guard down: If you think your information has been compromised, don't assume everything's fine after a few months. Stolen card information is often sold to a variety of groups on the black market who may hold onto it for months or even years.

"Many times these fraud rings will wait until the news dies down and people have forgotten about it before they use that data," Inscoe said. "It may not be used until next winter, so it really is a good idea for people to monitor their activity."

First Published: December 20, 2013: 6:25 AM ET

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Holiday tipping: Who to tip and how much

One basic tipping rule of thumb: Give a tip that's worth up to one session or a week's worth of service.

NEW YORK (CNNMoney)

The first thing to keep in mind: Tipping doesn't have to break the bank. Before you start handing out cash, set a budget that works with your financial circumstances, said Lizzie Post, co-author of the 18th edition of Emily Post's Etiquette, and the great-great granddaughter of etiquette guru Emily Post.

Then, make a list of the people you want to thank. Some common recipients include house cleaners, babysitters and nannies, hairstylists, yard workers, trash collectors and building doormen.

A basic rule of thumb suggests your tip be worth the value of up to one session or a week's worth of service.

Related: I work every holiday

But don't feel pressured to give more than you can afford, Post said. If you're unable to give cash, consider other ways to show your appreciation such as baked goods or a handwritten note.

"It's not a hard and fast rule," Post said. "Holiday tipping is really a thank you. And therefore when you think of it that way, I think people breathe a little bit easier."

A variety of other factors can also come into play, such as the quality and frequency of the service and the length of time you've been using the person's services. Tips also tend to be larger in big cities like New York or Los Angeles, according to The Emily Post Institute.

Related: 8 must-have holiday toys

And keep in mind that some workers aren't allowed to accept cash tips. Mail carriers, for example, are barred from accepting cash, checks or gift cards. But you can give snacks and beverages or a small gift worth up to $20, like a travel coffee mug.

You'll also want to check with your city's regulations before tipping government employees like trash collectors.

For people you tip regularly throughout the year, you can forgo the holiday tip entirely or give a more modest amount or a small gift.

Whatever you end up giving, a handwritten card is always nice to include. And try to give it in person whenever possible, said Lydia Ramsey, an etiquette expert and author of Manners that Sell. "Then you get to verbally express your appreciation as well," she said.

How much should you tip?

Etiquette experts at The Emily Post Institute provide these guidelines for holiday tipping.

SERVICE PROVIDER	SUGGESTED TIP
Au pair or live-in nanny	One week's pay and a gift from your kids
Regular babysitter	One evening's pay and a small gift from your kids
Housekeeper/Cleaner	Up to the amount of one week's pay and/or a small gift
Dog walker	Up to one week's pay or gift
Newspaper delivery person	$10-$30 or a small gift
Garage attendants	$10-$30 or a small gift
Doorman	$15-$80 or a gift
Building superintendent	$20-$80 or a gift
Trash/Recycling collectors	$10-$30 each. If it is a municipal service, then check city regulations first
Yard/Garden worker	$20-$50 each
Mail carrier	Small gift that is no more than $20 in value

Source: The Emily Post Institute

First Published: December 20, 2013: 6:30 AM ET

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DIY gin kit: Juniper berries included

The Homemade Gin Kig includes a blend of spices and flowers, dried juniper berries, two Italian glass bottles, a strainer and a funnel.

NEW YORK (CNNMoney)

In just the past year, they've taken a giant step toward it with their HomeMade Gin kit, which lets you craft your own spirits in the comfort of your home.

Maiellano and Hubbard, both 29, launched their business last November, assembling 250 packages in Maiellano's tiny kitchen in Arlington, Va. Their $50 kit includes a unique blend of spices and flowers, a tin of dried juniper berries, two Italian glass bottles, a strainer and a funnel.

"The first three orders came from an uncle and our dads," said Hubbard. "So we thought, 'Maybe this isn't a good idea.'" But when lifestyle blogs like UrbanDaddy and Thrillist started featuring the kit, holiday orders came pouring in.

"In a matter of weeks, we went from three sales to hundreds," he said. By the time the holiday season wrapped up, the startup had sold thousands of kits and outgrown its makeshift setup. They quickly rented out a warehouse facility and contracted with a fulfillment firm to speed up delivery.

Related: Buy a beer share, invest in local brewery

HomeMade Gin Kit has already sold more than 14,000 kits and logged over half a million in sales. The kits are sold through sites like Red Envelope and Uncommon Goods, stores like Anthropologie and Total Wine, as well as their own website.

Making your own batch of gin is legal, but first you need a bottle of vodka, said Maiellano. All gins use a neutral spirit like vodka as a base. Pour the kit's juniper berries into the bottle of vodka, shake it and leave it for 24 hours.

"Juniper berries are the backbone of all gin," said Maiellano. Next, add the proprietary blend of spices and botanicals to the bottle and let it rest for another 12 hours. The vodka strips the essential oils and the liquid retains the flavors of the berries and spices.

Then, strain the liquid into the kit's bottles and pour yourself a drink. Because it's a home-made concoction, Maiellano warns that it will have a slight color, but it won't affect the taste.

In fact, a recent Thrillist taste test ranked the HomeMade Gin Kit's finished product higher than top-shelf brands like Bombay Sapphire.

Related: This startup turns illegal guns into jewelry

Maiellano said a "perfect storm" of trends has helped their kit take off so quickly. "It's an exciting time in the spirit world," he said.

Micro-breweries and craft distilleries are booming as states amend liquor laws to let small-scale makers sell directly to consumers.

Another catalyst is the growing local and DIY food movement. "People are caring much more about what they're eating and drinking," he said.

And while there are plenty of home-brew beer kits, it's still rare to be able to make your own spirits.

"We're successful because we're one of the first to market a homemade gin kit," said Maiellano.

Not only have Maiellano and Hubbard recouped their $10,000 in startup captial, the business is debt free and profitable.

With a year under their belts, the partners are now focused on keeping the momentum going and hope to expand internationally.

Their ultimate goal is even bigger.

"We want to open our own distillery," said Hubbard. "We couldn't afford it yet, but we're not giving up on that dream."

First Published: December 20, 2013: 6:35 AM ET

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The new Koch

Charles (left) and David Koch have greatly expanded the company founded by their father.

(Fortune)

But when Koch CFO Steve Feilmeier was asked recently about the future of the U.S. economy, he launched into a spirited monologue about the bright prospects for the nation's high-tech industry. "It's the little things, like these BlackBerrys that didn't exist eight or 10 years ago," said Feilmeier, holding up his distinctly last-century smartphone and growing animated in his modest office along executive row. "These technologies have improved the quality of our lives tremendously. That's going to continue, very rapidly."

In early December, Koch Industries put some serious money behind that belief when it closed on its $7.2 billion acquisition of Molex, a global electronic components manufacturer headquartered in Lisle, Ill. Molex makes parts for a wide variety of gadgets, including iPhones, and was traded on Nasdaq before the buyout. Koch sees huge potential for Molex to benefit from the so-called Internet of Things revolution that's on the horizon. (See "Everything Is Connected" in this issue.) "Think about sensors and connectors and how [they're] proliferating right now," says Feilmeier, a stout 52-year-old who has the rah-rah intensity of a high school football coach. "As technology becomes more user-friendly and machines become wired to be more proactive -- whether that be industrial robotics and automation, or you have automobiles doing more for you and telling you more and keeping you out of accidents -- we think Molex is really well positioned to capture that growth."

Feilmeier envisions Molex growing from today's $3.6 billion in revenue to $10 billion within a decade and says there are hundreds of smaller tech companies that could be acquisition targets. "They just weren't out acquiring those companies or those technologies to enter new markets, and we'll really be able to help them with that," he says.

To the degree that most people have heard of Koch (pronounced "coke"), it is likely because of the political activities of the company's primary shareholders -- the brothers Charles and David Koch. Thanks to the tremendous growth of the family company founded by their father, Fred, more than 70 years ago, the Kochs are among the very wealthiest people in the world today. Each brother has a net worth estimated at $36 billion or more, and as their fortunes have grown, they have been aggressive about using their money to influence the political conversation in the U.S. The Kochs are staunch libertarians -- David ran for Vice President on the Libertarian Party ticket back in 1980 -- with a distaste for big government and, some would argue, regulation that might infringe on the profitability of their businesses. Money from the Koch brothers helped fund groups that spawned the Tea Party movement. One of the prime vehicles for their efforts is the Koch-sponsored political advocacy group Americans for Prosperity, which has taken on an array of political fights -- from repealing Obamacare to fighting the power of public sector unions in Wisconsin. According to a recent study by the Center for Public Integrity, AFP spent $122 million in 2012 alone. But that is hardly the extent of the Kochs' political spending. They have given tens of millions to help support a network of other conservative organizations. As a result, the brothers have become outsize figures in America's partisan political narrative -- all-purpose bogeymen to those on the left.

All the attention on the Koch brothers' politics, however, obscures the story of how their sprawling conglomerate has become one of the most important companies in America. If Koch Industries were eligible, its $115 billion in revenues would be enough for it to rank No. 17 on the Fortune 500, with sales larger than those of Google, Goldman Sachs, and Kraft Foods combined. It has doubled in size in the past decade. But Koch isn't important just because it's big. As Koch grows, it is reaching into new areas of business and becoming more closely entwined with more consumers. Koch owns well-known brands such as Stainmaster carpet and, thanks to its $22 billion purchase of Georgia-Pacific in 2005, Quilted Northern toilet paper, Brawny paper towels, and Dixie cups.

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Everything is connected

(Fortune)

Qualcomm isn't rejecting its past; rather it is trying to expand its potential market by bringing wireless connections to tens of billions of devices, from mundane items like washing machines and coffeemakers to lifesaving tools like defibrillators and pacemakers. The vision is simple: If everything is connected to the Internet, those items can tell the network, and by extension a consumer, when something is wrong (an irregular heartbeat or an intruder in the garage), an object is missing (the fridge knows there's no milk), or conditions have changed (traffic on the highway has cleared). The consumer, or another device, can in turn talk back and alert a doctor to the heart issue, send a homeowner a reminder to stop at the store, or, in the not-so-distant future, program the car to take the freeway home.

This concept of the Internet of Things is hardly new; the term dates back to 1999. But Qualcomm, which reported almost $7 billion in profits on $25 billion in sales in the 12 months ended Sept. 29, is breathing life and considerable resources into the effort. The San Diego-based tech giant will spend a chunk (it declines to say exactly how much) of its $5 billion annual R&D budget to make what it calls the "digital sixth sense" a reality.

Qualcomm's effort to redefine itself comes as the company is undergoing another transition: In mid-December the chipmaker said CEO Paul Jacobs would be replaced in March by current operating chief Steve Mollenkopf. Sources say that Mollenkopf had long been the board of directors' pick to eventually run the company, and that the directors accelerated the succession process when it learned Microsoft (MSFT, Fortune 500) was courting Mollenkopf to replace Steve Ballmer as the head of the software giant. Jacobs will remain executive chairman of Qualcomm. "It's a very unique place in the industry, and I'm humbled to have the opportunity to shepherd it further," Mollenkopf told Fortune the day his promotion was announced.

Mollenkopf and Jacobs have an interesting challenge ahead: For its Internet of Things gambit to become a reality, Qualcomm needs to do more than retool the chips and sensors the company makes today, though that's a big task. The company needs to build other parts of the ecosystem (such as the operating language that allows devices to talk to one another) just to get potential partners to see the potential of Qualcomm's vision. Thus, Qualcomm has created AllJoyn, an open-source software platform for Internet-connected devices, and Toq, which looks a lot like a giant Casio Classic. (Okay, so maybe Qualcomm isn't ready to move into couture.)

And yet Qualcomm has played this hand before, with fabulous results. Today Qualcomm's chips are found in about two-thirds of the world's 3G and 4G broadband phones. Its components power Apple's iPhone (Apple designs its processors but uses some Qualcomm parts, such as radio chips), Samsung's line of Galaxy devices, and Amazon (AMZN, Fortune 500) Kindle Fire HDX 7. Apple (AAPL, Fortune 500) and Google (GOOG, Fortune 500) get a ton of credit for making smartphones accessible, but there might not be smartphones if it were not for Qualcomm.

That's because Qualcomm didn't just invent stuff for the innards of the phone: Management tried to show mobile computing in action. Long before the release of the iPhone and the opening of Apple's App Store, Qualcomm built and tried to commercialize its own smartphone and app store. Back when consumers eschewed the idea of watching video on phones, Qualcomm created a business to stream live television to handsets. The company has since exited those businesses (and a few were total bombs, like the broadcast TV unit), but not before it showed the world the potential of smartphones -- while selling loads of its chips and components in the process. Can Qualcomm, which has already helped radically redefine the way consumers work, communicate, play, and learn, shape the future yet again?

Paul Jacobs has folded his lanky frame into a cream-colored Ikea armchair -- and, more important, onto a teeny-tiny motion sensor that's been tucked into the seat's foam-filled cushion. He's maneuvering around a lab at Qualcomm headquarters, test-driving some of his engineers' latest innovations. Jacobs stands up, and a nearby lamp shuts off. He sits back down, and the light flickers on again.

"Here's the issue," Jacobs says, looking up at the two engineers standing beside him, eagerly awaiting his approval. "This thing is a battery-operated deal, so how does it let me know that my butt-sensor battery is out?" The engineers assure him that the sensor can be programmed to stay in sleep mode until it's activated by, well, the pressure of someone's derrière, which minimizes its power consumption. Jacobs peppers the team with more questions: What's the control interface? Does the lamp have a dimmer? How much do the added components cost? "This is a good idea," he finally says, to the engineers' relief.

Conversations about butt sensors and programmable lamps are becoming increasingly commonplace at the Qualcomm campus. There's an urgency to the company's push into new areas. Nearly all of Qualcomm's revenue is tied to sales of phone components such as baseband chips and application processors or licensing fees that phonemakers pay for its patents, and while there's still plenty of growth in markets like China, where carriers are now building out data-driven broadband networks, smartphone growth is declining for the first time in more mature markets. That slowdown hits Qualcomm in two ways: Its sales growth in components slows down, and its customers, the handset manufacturers, shift their energies to cheaper phones for emerging markets, phones that generate lower patent royalties for Qualcomm.

As a result, investors are clamoring for Qualcomm to diversify. Analysts at Gartner predict that the trend of turning everyday objects into data-spewing machines will help add $1.9 trillion to the economy, spread across manufacturing, health care, and other industries, over the next six years. Jacobs believes there will be an average 22 connected devices per U.S. home by 2020. "The digital sixth sense is the next evolution of smartphones and tablets," says Francis Sideco, an analyst with research firm IHS. "It will be a dynamic new market for Qualcomm and its competitors to attack."

To understand where Qualcomm -- and quite possibly the future of wireless technology -- is going, it's helpful to look at where the company has already been. Irwin Jacobs, a former computer science professor and Paul's father, founded Qualcomm along with six other engineers back in 1985. Their mission? Commercialize CDMA (the abbreviation stands for "code division multiple access"), a digital wireless technology once used by the U.S. military for secure communications. In so doing, Qualcomm introduced a new wireless standard in the market, in competition with GSM, the system favored by Europe and much of the rest of the world. U.S. carriers ended up picking sides, with Verizon (VZ, Fortune 500) and Sprint (S, Fortune 500) using the CDMA standard for its digital network and AT&T (T, Fortune 500) picking GSM.

Qualcomm filed thousands of mobile patent applications, which forced anyone who wanted to make a phone that ran on a CDMA-based network to shell out royalties to the company. That resulted in many heated legal battles with handset makers, as even rival chip companies were forced to pay licensing fees to Qualcomm. But Qualcomm prevailed, and by 2000 it realized that its cash cow was chipset manufacturing and intellectual-property licensing; the company sold off its other businesses. But that didn't keep it from having a starring -- albeit behind-the-scenes -- role in the explosive entrance of smartphones. "Paul, as far back as I can remember, was saying that the wireless Internet was going to be greater than the wired Internet," says Peggy Johnson, a Qualcomm executive vice president who helped Jacobs convince now-defunct PDA maker Palm in 1999 to launch the pdQ, a predecessor to today's smartphone.

According to Johnson, Jacobs, who was in charge of the company's wavering handset division back in the pre-smartphone days, walked into a meeting one day holding a cheap Qualcomm-made cellphone taped to a PalmPilot. "That's what I want to build," he told the team. "Not many people even texted at that point," says Steve Sprigg, senior vice president of engineering at Qualcomm and lead of the company's early smartphone initiative. "The biggest hurdle was somewhat of a mindset issue -- convincing people that, in effect, you were holding a little computer in your hand."

Pushed by Jacobs, Qualcomm execs spent months wooing Palm's then-CEO, Donna Dubinsky, and top mobile operators, trying to convince them that consumers would want to use one device for making calls and sending email. The 6.2-inch pdQ finally launched to great fanfare. "Once you use the pdQ, you will not want to go back to using a standalone Palm unit," wrote one reviewer. The problem was that there was little else to do but email. So Jacobs created Brew, an open applications platform for CDMA-based phones. (Some handset manufacturers still use the operating system for "feature phones" -- lower-price devices that don't have as much computing capability as smartphones.)

Jacobs is clearly proud of Qualcomm's role in promoting mobile computing, but he's the first to acknowledge that others are better at app stores and phone manufacturing. "I give Apple a lot of credit for exploring the consciousness of what a phone can be," he says. "And obviously Google getting into the space with Android was very good for us too."

While the barriers to entry in much of technology are crumbling, the chip business has remained relatively protected, largely because of its complexity (it's hard for a design-school dropout to launch the next Intel) and production costs. But the Internet of Things has the potential to change that. The extremely low-power chipsets for low-tech devices like refrigerators and espresso machines could open doors for new entrants to the chipmaking business that embrace the same "fabless" model, in which semiconductor companies farm out silicon manufacturing to mostly Asian factories. It is a model that has worked well for Qualcomm. Meanwhile Intel (INTC, Fortune 500), which missed the shift to mobile computing, to the dismay of investors (in the past decade its stock has fallen 20%; Qualcomm shares are up 185%), is determined not to miss the Internet of Things movement. Under new CEO Brian Krzanich, Intel also is pursuing a new family of chips especially suited for "wearables" and other devices.

Jacobs insists that Qualcomm's move into new devices isn't a defensive step but a complement to its existing mobile-computing business, where it enjoys a commanding technology lead. (Qualcomm is on its fourth generation of chips for so-called LTE broadband networks. Rivals Intel, Nvidia (NVDA), MediaTek, and Broadcom (BRCM, Fortune 500) are producing their first generation of LTE processors.) The Toq watch is programmed to sync with the user's smartphone. The watch's face tells you when you have incoming calls and messages, for example. "I gave one to Shaq," Jacobs says during a stroll on Qualcomm's campus. Jacobs co-owns the Sacramento Kings with the former Los Angeles Lakers center Shaquille O'Neal. Jacobs also is a funder of La Jolla Playhouse and a big donor to the University of California at Berkeley. In a later conversation Jacobs expressed no angst about having to relinquish the CEO role earlier than expected. (Having a net worth of more than $400 million perhaps helps cushion the blow.) "The fact that Steve is taking over as CEO is a great outcome for us," he says. "I really want to focus on things I'm passionate about."

A decade ago Fortune ran a story titled "Heads We Win, Tails We Win," about telecom's transition from narrowband networks to 3G broadband networks. It turns out that all 3G systems, regardless of whether they started out as CDMA, rely on Qualcomm patents, and therefore Qualcomm has been entitled to a toll.

Incoming CEO Mollenkopf believes a similar opportunity applies to the Internet of Things. "Our ambitions are to really be much more pervasive, not only in the phone space but in whatever replaces the PC, whatever happens in the home, in the car," he says. "But we also know that those things will be running some form of smartphone ecosystem, and it's going to be connected all the time, and it's very likely going to be through some sort of Qualcomm technology."

And so just as Apple took the smartphone further than Qualcomm ever could with the pdQ, other companies will build the software, apps, watches, and, yes, even the butt sensors that will power the Internet of Things. And that's just fine with Qualcomm. Put another way: Heads we win, tails we win.

Qualcomm and the Birth of the Cool
Here are some of the products the San Diego tech company has pioneered.

1993: First CDMA phone. The CD-7000 was the first in a series of CDMA-based cellphones manufactured by Qualcomm. It later sold its handset business to Japanese manufacturer Kyocera.

1999: pdQ smartphone. Jacobs's vision to combine the data capabilities of a PalmPilot with voice functions found on basic cellphones finally materialized in the pdQ, the first CDMA smartphone.

2001: Brew platform. Well before the Apple App Store, there was Brew, Qualcomm's attempt at a mobile-applications store and developer platform, which made over-the-air downloads possible.

2004: MediaFlo. The company announced plans to stream live network television to phones; it shuttered the unit, but not before showing that people could watch video on small screens.

2007: Snapdragon system-on-a-chip. The company's popular Snapdragon line of chipsets combines wireless connectivity, multimedia performance, and superfast data processing, and is found in the Google Nexus 7 and the Amazon Kindle Fire HDX.

2013: AllSense Alliance. In an effort to ramp up the Internet of Things, Qualcomm open-source software, an extension of AllJoyn, lets devices communicate with one another, allowing any manufacturer to embed the technology in TVs, washing machines, and other gadgets.

This story is from the January 13, 2014 issue of Fortune.

First Published: December 19, 2013: 7:21 AM ET

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Where Google Ventures is pinning its hopes

(Fortune)

Google (GOOG, Fortune 500) is not searching for better cancer therapies, at least not yet. Google Ventures, the search giant's venture capital unit, is helping Foundation because the life sciences company is one of its marquee investments. The venture group has a dedicated team of designers that huddles in intense sessions with portfolio companies to help them revamp websites, build new mobile apps, and fine-tune hardware products. "They really helped transform our website," says James Freeman, the CEO of Blue Bottle Coffee, which is also backed by Google Ventures.

Five years after its founding amid snickers and skepticism, Google Ventures has emerged as one of the hottest venture firms in Silicon Valley. It's sought out by entrepreneurs and, as a co-investor, by the Valley's marquee firms. In 2013 alone, three of its portfolio companies have gone public, and six were acquired.

Its range of investments is surprisingly broad. You'd expect Google Ventures to bet on business software, mobile apps, and gadgets like smart thermostat company Nest, which it has. But Foundation and SynapDx, which is developing a blood test for early detection of autism? Or Cool Energy Systems, which aims to produce fuels based on plant photosynthesis in a process that removes carbon from the atmosphere? It has also made bets in education, finance, and robotics companies that have nothing to do with search or Android. "Most of the world's innovation doesn't happen at Google," says David Drummond, Google's senior vice president of corporate development, who oversees Google Ventures. "We have the capability to use our money, our time, our effort, our expertise, our brain power, and the Google brand to help build great companies, that's a worthwhile thing to do."

As at Google itself, some Ventures bets fall in the "moon shot" category, while others are more modest in scope. Collectively, they say a lot about where Google sees an opportunity to bring disruptive innovation to create a different future -- one where medicine is more personalized; where the Internet broadens access to financial, educational, and clean energy resources; and where children can begin to learn computer science concepts from toy robots.

Staffed by some 60 employees, most of them ex-Googlers, Google Ventures has shaken up the venture business in myriad ways. With its dollars backing more than 220 companies to date, the firm has become one of the Valley's most prolific investors. It was the first major venture firm to use data scientists to help vet investments by analyzing scores of variables to detect what's likely to work based on what has worked before. As it grew from two general partners to 11, its investments have ranged from "seed" bets of a few tens of thousands to a $258 million investment in Uber earlier this year. Google Ventures contributes more than money. In addition to providing design services, it hosts workshops where founders and employees of portfolio companies hone their product management or operational skills. It helps with marketing, recruiting, and engineering, often tapping Google's vast resources.

Like other venture firms, Google Ventures does not disclose its returns, but its approach appears to be paying off. Google, which is the sole investor in the firm, allotted $100 million to Google Ventures in its first year, 2009. It has since upped its investment to $300 million annually, a testament to Google's satisfaction with the results. The group now has more than $1.2 billion under management. More than 20 of its companies have gone public or been sold so far. One of them, Climate Corp., which uses big data to make highly localized weather predictions, fetched about $1 billion from Monsanto (MON, Fortune 500) this year. And in a business where failures are common, only a handful of its portfolio companies have been shuttered. A top Google executive familiar with Google Ventures' returns recently confirmed that they are far above the industry's mean. "When we started, I got literally laughed at by some venture capitalists on Sand Hill Road," says Bill Maris, the founder and managing partner of Google Ventures. "Google didn't have a reputation for being a good investor or a smart investor in startups."

Google Ventures' emergence as one of the top financiers of startups may be a first for a corporate venture fund. While tech companies have long backed startups, their venture arms have a history of subpar returns. That's in part because they are often hamstrung in investment decisions by an imperative to deliver strategic value to their parent company. Maris argued persuasively that to compete effectively, Google Ventures, like standalone venture firms, had to be measured solely by its financial returns. Google established Ventures as a fully independent unit whose investment decisions don't have to be cleared with Google and where virtually every employee shares in the returns of the fund. If some investments help Google in strategic ways, so much the better, but that is not a requirement. Indeed, Google Ventures has sold companies to Google rivals like Dropbox, Facebook (FB, Fortune 500), Twitter (TWTR), and Yahoo (YHOO, Fortune 500).

Maris, 38, is a graduate of Middlebury College with a background in life sciences who founded an early web hosting company. As a biotech analyst, he once worked with Anne Wojcicki, the CEO of 23andMe, who recently separated from her husband, Google co-founder Sergey Brin. Maris has the ear of Google's top brass. He recently hatched the idea for Calico, the secretive anti-aging startup launched by Google and headed by Art Levinson, the chairman of Genentech and Apple (AAPL, Fortune 500).

On a recent day, Maris ambles into a crowded conference room looking a bit haggard. It's the morning after the Google Ventures holiday party, and the night before that Maris was up late as well -- celebrating his engagement to his girlfriend. About three dozen people, none of them looking past 40, gather around a large conference room table, and a few more join via video conference from Google Ventures offices in Boston and New York for the group's weekly meeting. Maris and the others get updates on the design sessions, on a CEO summit for portfolio companies, and on briefings with Fortune 500 companies that Google Ventures hosted for some of its startups. In classic Google fashion, everything -- down to the number of days it takes the group to respond to startups seeking funding -- is quantified.

Despite all the Google trappings, Maris has helped to create a startup culture at Google Ventures. It's an essential ingredient, because without it, he wouldn't have been able to amass the talented group. Many of the general partners, as well as some of the designers and engineers, are entrepreneurs who sold companies to Google and might have decamped for greener pastures. They include Rich Miner, co-founder of Android; Kevin Rose, founder of Digg and Milk; and Joe Kraus, co-founder of Excite and JotSpot. "A lot of our team has been built by people who have built amazing companies," says Miner, who heads the Boston office. "Ventures is a pretty good destination for people who have that profile."

As it searches for industries to disrupt, Google Ventures is even willing to look at its own. Earlier this year it led a $28 million financing round into AngelList, often described as a Craigslist-like marketplace that matches entrepreneurs and angel investors. AngelList introduced a new funding model called syndicates, in which no-name angels pool their dollars with those of investors with an established track record. The model essentially allows better-known investors to build mini-funds for specific deals -- which puts those investors in direct competition with Google Ventures, especially over seed-stage deals, which account for about half of its investments. "People called me and said, 'Are you crazy? You're investing in something that might put us out of business,' " says Wesley Chan, the Google Ventures partner who led the investment in AngelList. "I'd rather be on the right side of the disruption." It's clear that Google Ventures has inherited its parent's DNA.

This story is from the January 13, 2014 issue of Fortune.

First Published: December 19, 2013: 7:22 AM ET

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The new inequality: health care

Health care inequality is on the rise.

NEW YORK (CNNMoney)

The wealthy are also getting better access to health care, as well as better treatment. This growing gap is showing up in some surprising ways.

"The inequality is really driven by the higher end," said Thomas LaVeist, director of the Hopkins Center for Health Disparities Solutions. "Most economically advantaged people are getting so much better care than they were even 10 years ago."

President Obama is pushing the Affordable Care Act, known as Obamacare, as one way to increase Americans' economic security because it will allow many uninsured and under-insured Americans to gain more comprehensive coverage and avoid bankruptcy due to medical costs. In a recent speech, he cited Dr. Martin Luther King's observation that injustice in health care is the most shocking and inhumane.

But it will still be tough to close the gap in these three areas where the rich excel:

More doctors: The wealthy have a lot more choices of doctors -- particularly specialists -- they can see. A growing number of doctors are refusing to participate in any insurance plans so only those who can afford to pay up front can book appointments. And more physicians are setting up concierge services, where patients pay a membership fee but are guaranteed to be seen that day.

At the same time, fewer doctors are accepting Medicaid because of declining government reimbursement rates, LaVeist said. So many low-income patients have to wait longer and travel farther to get an appointment. This problem may get even worse as millions more Americans qualify for Medicaid under Obamacare.

As for those in the middle who are signing up for individual insurance plans through the Obamacare exchanges, they'll likely find their choice of doctors and hospitals somewhat limited. Insurers are keeping their networks narrow to help keep premium prices down.

Share your story: Are you signing up for Obamacare?

Better treatment: Many studies have shown that doctors treat lower-income patients differently than their wealthier counterparts, LaVeist said. Those of higher means are more likely to receive better pain management, suffer fewer instances of medical errors and have lower readmission rates to hospitals. They are also more likely to have more treatment options explained to them.

"Health care professionals have the same prejudices as anyone else," LaVeist said. "They'll respond differently to people they think are higher status."

Take the difference in treatment of some Medicare recipients. Some 27% of low-income seniors were given a medication they should not have received, while only 16% of higher-income ones did, according to a University of Pittsburgh study.

Higher-income patients are also more likely to have access to the latest medical breakthroughs, either because they can afford to pay for it out-of-pocket or because they have more comprehensive insurance policies that cover cutting edge treatments.

Better health: Wealthier Americans tend to be in better health than their poorer counterparts. That's due to a mix of education, behavior and environment, experts say. They are more likely to take better care of themselves, but they also have the means to buy healthier food, live in safer, cleaner neighborhoods and engage in physical activity.

A recent Commonwealth Fund study showed the stark contrast: Some 27% of low-income people smoke and 34% are obese, while only 12% of higher-income folks smoke and 25% are obese. Even more surprising, some 16% of poorer Americans have lost six or more teeth, while only 5% of wealthier ones have.

"Higher income people are in a better position to take advantage of the health care system," said David Radley, senior scientist at the Commonwealth Fund.

First Published: December 18, 2013: 5:52 AM ET

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Toyota Prius is Consumer Reports' best new-car value

NEW YORK (CNNMoney)

The product-testing organization said Wednesday that the Prius, which retails for $29,230, "has the right combination of performance, reliability and low estimated five-year ownership costs of 47 cents per mile."

To create its rankings, Consumer Reports tested over 200 vehicles currently on the market, looking at road-test scores, reliability and five-year owner-cost estimates. The Honda Fit, this year's runner-up, held the number-one spot in the Consumer Reports ranking for four years running before it was unseated by Toyota's (TM) Prius last year.

Related: BMW, Mercedes take different roads on electric cars

The top-performing vehicle among luxury cars was the Lexus ES 300h, while the Honda (HMC) Ridgeline TRS won out among pickups. The Subaru Legacy 2.5i Premium took the top spot among midsized cars.

Related: Which car has the best fuel economy? Take our quiz.

Coming in at the bottom of the ranking was the Nissan Armada SUV, which gets only 13 miles per gallon of gas and generated a large number of complaints from Consumer Reports subscribers.

First Published: December 18, 2013: 6:02 AM ET

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Countdown to the Snapchat revolution

Snapchat's Evan Spiegel (left) and Bobby Murphy, photographed in Venice, Calif.

(Fortune)

For starters, fans of the disappearing-photo-sending service are mainly teens and other so-called digital natives, a fickle (translation: attention-deficient) audience that jumps from one digital confection to the next, bolting the minute a fave app goes mainstream. Then there are the founders of Snapchat -- CEO Evan Spiegel is 23, Bobby Murphy, the chief technical officer, is 25.

They're the kind of superconfident millennials who drive executives crazy because they don't know what they don't know. To wit: These kids turned down a multibillion-dollar acquisition offer from Facebook (FB, Fortune 500), even though they don't have a cent of reported revenue. And just what the heck is a "disappearing-photo-sending service" anyway?

But it would be a mistake to dismiss the Snapchat juggernaut. Far from being a fad, the service has grown in just two years from zero to tens of millions of devotees, who send as many as 400 million photos a day -- and that number is growing. Investors have taken notice and poured $123 million into Snapchat, valuing the revenue-less company at an eye-popping $2 billion.

Why are investors and other grownups so into Snapchat? They see a company that isn't merely improving the photo-sharing craze established by Instagram (acquired by Facebook in April 2012 for $1 billion) but creating an entirely new form of communication. Its signature feature allows users to share photos and videos that disappear forever after just a few seconds. (The sender chooses the expiration time, up to 10 seconds, using a clever timer in the Snapchat app.) Just as email revolutionized the way people "talk" to each other at work and Twitter (TWTR) is altering the way people broadcast information, Snapchat has in a very short time become the lingua franca of a younger generation.

MORE: Stripe's co-founder on visionaries vs. implementers

Snapchat's ascent has caught its rivals off-guard -- Facebook's buyout offer (after it tried to copy it) suggests that the rest of the social media ecosystem covets what Snapchat has created. Google (GOOG, Fortune 500) and Yahoo (YHOO, Fortune 500) both are investing heavily in building out features that encourage users to interact with photos. Meanwhile, around the world, especially in China, similar "short burst" communication apps, such as Whatsapp, WeChat, Kik, MessageMe, KakaoTalk, and Line, are on the rise. They allow users to replicate the texting experience without the fees, a trend the phone companies must be eyeing nervously.

Snapchat's future success is by no means assured. The ephemeral nature of transactions on the platform, the very thing that makes Snapchat so tantalizing to its audience, is a turnoff to marketers, who are looking for ways to monitor and track customers' every move. Nevertheless, the Snapchat story, while still in its early chapters, offers important insights into the speed with which mobile services can proliferate. Inexperience and bravado, once traits that business executives sought to downplay (remember the "adult supervision" that investors used to impose on young founders?), are now assets, though financiers hedge their bets by providing founders with plenty of mentoring and support. If nothing else, Snapchat's story serves as a reminder that innovations are always around the corner, and no company is immune to disruption -- not even Snapchat itself.

In the spring of 2011, Evan Spiegel and Reggie Brown, both juniors at Stanford University, hatched an idea to build a mobile-phone app. It featured a unique approach: the disappearing photo. Spiegel and Brown's own classmates dismissed the concept. When Spiegel presented it to his product-design class, his peers shot it down. Still, Spiegel and Brown believed they were on to something. They recruited Bobby Murphy, a 2010 graduate and a fellow member of the Kappa Sigma fraternity, with whom Spiegel had collaborated on an earlier, failed startup. (Called Future Freshman, a website for high schoolers, it never graduated.)

That summer the trio set to work at the home of Spiegel's father, John, a prominent corporate litigator in Los Angeles. John Spiegel's $3.3 million home in the swank Pacific Palisades neighborhood defied the startup narrative: There were no late nights spent wolfing down cheap takeout burritos à la Silicon Valley. These founders had access to a personal chef and a pool, and they indulged in L.A'.s nightlife scene. By mid-July they'd launched an app with a yellow "Ghostface Chillah" logo (an homage to the rapper Ghostface Killah). They originally called the service Picaboo -- a mashup of "picture" and "peekaboo" -- meant to convey the signature functionality of their idea: Now you see it, now you don't.

MORE: Qualcomm's new CEO: Steve Mollen-who?

The friends moved quickly to turn the idea into a company. After just three months of coding, they launched a prototype in Apple's App Store -- and had an internal dispute so contentious it will surely require large sums of money and a gaggle of lawyers to resolve. After Spiegel and Murphy quarreled with Brown over the order of their names listed on Snapchat's patent application, the two set the proverbial timer on Brown's involvement with Snapchat and allegedly pushed him out of the company. Brown, now an MBA student at Duke University, is suing Snapchat, seeking damages plus a third of the company's equity -- suddenly a meaningful demand.

Meanwhile, in September 2011, Spiegel and Murphy renamed the app Snapchat, and it immediately began to catch on. Its first users were Orange County high school students who'd learned of it from one of Spiegel's cousins. The students had been equipped with iPads, but Facebook was blocked. (Hey, it was school!) Snapchat was a great workaround. Within two months it had 3,000 users. Then Apple (AAPL, Fortune 500) introduced a reverse button for the camera on its phone, designed to make selfies easy. Growth took off.

In many ways the timing was perfect for Snapchat's explosion. The app caught the attention of a generation of kids smartening up to the dangerous potential of social media. The web had become a scary place, where every faux pas became permanent. Anthony Weiner had gotten caught with his pants down. Literally. College administrators began reviewing prospective students' social media profiles before admitting them. New graduates learned that potential employers could view the tangible evidence of their youthful indiscretions. A racy communication tool that left no fingerprints suddenly looked attractive.

MORE: Find an apartment in San Francisco? That'd be Lovely

By May 2012, Spiegel had taken a leave from his studies, and he and Murphy were running low on cash. (The pair had previously self-financed, relying on Murphy's salary as an engineer with Revel Systems, an iPad point-of-sale company, to pay the server bills. In April 2012, Murphy had quit his job.) Meanwhile, venture capitalists were beginning to notice the app's impressive growth. Lightspeed Venture Partners' Jeremy Liew heard about it through a colleague, who had noticed the app on his teenage daughter's phone. He tracked Spiegel down -- via a Facebook message -- to make the first investment. Spiegel and Murphy used the $485,000 from Lightspeed to hire engineers and pay for computing power. Later in the year Silicon Valley heavyweights Benchmark Capital and SV Angel joined Lightspeed to invest another $12.5 million.

While the service didn't initially attract people over 25 years old, the sheer speed of its growth caused a small subset of power brokers to pay attention. Sony Pictures CEO Michael Lynton's kids attended school at Crossroads, the same posh liberal prep school Spiegel had attended. Lynton's wife emailed Spiegel to come to dinner, and soon afterward, in June 2013, the studio head joined the company's board. Around the same time, Snapchat raised $60 million in a funding round led by IVP that valued the company at $800 million. As it turns out, that was nothing. Less than six months later hedge fund Coatue Management invested $50 million at a valuation of $2 billion.

Early on, the app caught the attention of Mark Zuckerberg, Facebook's CEO. In December 2012 he flew to Southern California to meet with Spiegel and Murphy. Shortly after that, Facebook began experimenting with a copycat feature called "Poke," named for a popular game-like feature from Facebook's earliest days. It was a move that Spiegel referred to at a fall tech industry conference as "the greatest Christmas present we ever got" because of the attention Facebook's assault focused on Snapchat. Poke failed.

MORE: How to innovate? Google exec explains

Outwardly Zuckerberg maintained that as social media matured, kids were doing more of it, so they could embrace lots of services without abandoning Facebook. "People assume that because there are different experiences, somehow it's a zero-sum game," he told Fortune in April. "But it's actually a rapidly expanding market. People share more and more every year, and they want lots of different experiences."

Despite the brave face Zuckerberg put on, Facebook was already concerned that Snapchat could steal some of its thunder with teenagers. Last fall it tried to buy Snapchat, offering to pay more than $3 billion, according to multiple sources close to both companies. The spurned offer was the first in a chain of Snapchat-related dings for Facebook. On Oct. 30, in an earnings call with investors, Facebook disclosed that daily active use among teens had fallen off. Then in early December Snapchat named a new chief operating officer: Emily White, the 35-year-old Facebook executive who had been charged with making that company's Instagram unit profitable.

In October, Snapchat introduced "stories," a new feature in which photos don't immediately disappear. Users and their friends can build "chains" of photos, basically a digital photo album, that are available to all their contacts for 24 hours. (There's also an option to share stories with all Snapchat users.) The community can view the album an unlimited number of times until it expires. Stories represents an evolution for Snapchat, offering customers slightly less privacy and urgency than the original product promised, while edging toward the kind of product marketers find appealing. Stories could be tweaked to include more contributors (including corporations) and to allow images to be accessible for longer periods.

MORE: For Workday, payback comes at a price

Snapchat says the new feature was under development for more than a year, and other moves suggest that the company has been getting ready for primetime. This fall it gave up the powder-blue beach bungalow it was using as headquarters for a much larger, less flashy storefront hidden in a Venice alley. There's no signage anywhere; a tiny gray ghost painted on the door is the only indication that 30 or more employees are coding within. Earlier in the year it hired Philippe Browning, a midlevel mobile-advertising executive from CBS Interactive. His title -- vice president of monetization -- suggests a seriousness of purpose for Snapchat. It also has begun approaching well-known online marketers to encourage them to consider using Snapchat.

So far the response has been tepid. Only a few marketers are running tests on Snapchat. Taco Bell, for example, used Snapchat in May to distribute photos of its new Beefy Crunch Burrito, and it publicized its photo campaign on Twitter. The restaurant chain is now experimenting with stories. Some potential partners maintain that the service remains too new to be on marketers' radar screens. "I'm on the boards of Chegg, Groupon, and Caesars," says Jeff Housenbold, CEO of the market-leading photo site Shutterfly. "Snapchat is not entering into the marketing conversation at all. In contrast, Pinterest is entering the discussion all the time. But not Snapchat."

Snapchat must persuade marketers that the benefits of reaching its coveted youth audience outweigh the relative anonymity of that audience. "In an era where big data rules, how does Snapchat, which collects no data on the user, sell itself to marketers?" asks Arra Yerganian, chief marketing officer for University of Phoenix, a big online advertiser.

MORE: Big tech stocks' bright 2014 outlook

Marketing isn't the only way Snapchat might make money, of course. Game publishers have used messaging platforms in Asia, including Chinese online giant Tencent's WeChat, to publicize its games and allow users to share their experiences. Snapchat would work well that way. After building up a bigger user base, Snapchat also could experiment with premium services, such as storing photos.

With its $100 million-plus in venture money and a new operating chief, Snapchat certainly has the resources to try new products and find ways to court companies that will pay for access to the Snapchat universe. But given the speed of innovation going on in China and Silicon Valley (and now Los Angeles), what Snapchat does not have is unlimited time. And a company with a timer as part of its app is sure to realize that.

Reporter associates: Marty Jones and Chanelle Bessette

This story is from the January 13, 2014 issue of Fortune.

First Published: December 18, 2013: 6:07 AM ET

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The right way to leave your business behind

It may be time to come to grips with one of the hardest questions facing any entrepreneur: Who will run your business when -- or if -- you're not around?

NEW YORK (CNNMoney)

Kathleen Richardson-Mauro agreed: "So many CEOs, rather than deal with the reality of their company's future without them, carry on as if nothing will ever change."

The pair speaks from years of experience. They're partners in Richardson-Mauro & Johnson, a Boston-based consulting firm that helps business owners plan for a smooth transition to life after entrepreneurship. Richardson-Mauro has owned five different businesses, and Johnson sold her accounting practice after 14 years.

Now, they've turned some of that know-how into a book, Cashing Out of Your Business, and a self-help website, the Business Transition Academy. Here are three tips to getting ready for your retirement:

1. Figure out what a happy life outside the business will look like.

By now, if you're like most entrepreneurs, your identity and that of the company may be one and the same. But looking ahead means turning your attention to other interests, whether those are spending more time with family, catching up on reading, or taking time to travel. Devoting some time to this now "will provide you with direction and enable you to minimize regrets later," said Johnson.

Related: The danger when one client is 80% of sales

This is also where entrepreneurs need to be hard-headed about money.

"Take stock of the assets you've accumulated outside the business, as well as how much money you'll need to extract from the company to fund the rest of your life," Johnson suggested. Then make a specific timetable for withdrawing that money from the business, perhaps putting it in a tax-deferred retirement account, a 5-year certificate or a 10-year bond. That way, neither you nor your heirs can easily spend it.

2. If it's a family business, be extra cautious.

Richardson-Mauro noted that most U.S. companies are family-owned enterprises. "Naturally, owners often want to 'keep it in the family', but that doesn't always work out," she said.

One common mistake: Trying to be "fair" by distributing ownership evenly among children, even if they haven't all taken an active role in the business. "Be honest about what's really best for the company and its employees," Johnson said.

Related: How to successfully launch a second startup

Consider grooming a trusted lieutenant to take over when you step aside. It's also possible that the business' future lies with someone you haven't met yet. Richardson-Mauro said an increasing numbers of baby boomer CEOs are selling their companies to people eager to run their own show. A business broker can help you find the right buyer, especially if you're not in a hurry.

3. Start making a succession plan now.

Many business owners procrastinate until they get an unsolicited purchase offer, or their world is rocked by a life-changing event like an illness or injury, before they start thinking about what's next. The trouble is, making decisions under pressure rarely works out as smoothly as taking your time and thinking things through beforehand.

"Change is natural in every part of life," Richardson-Mauro observed. "If you plan for it, you're more in control -- and more likely to achieve an outcome that makes you happy."

First Published: December 17, 2013: 3:39 AM ET

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