First things first: I'm pleased to announce that John Wiley has just published my book, Information, Technology, and Innovation.
The topics will be familiar to readers of this newsletter as many chapters began life here. It's available in hardcover and e-book formats at Amazon and Barnes & Noble.
Now to the new tech landscape:
Who's winning in the current consumer technology market, and why? Who's best positioned going forward? A disclaimer: some names that used to figure in this discussion are missing. Dell (which last week dropped the smartphones that no one knew they sold), HP, IBM, Oracle, and SAP compete on different capabilities and attributes in the enterprise market, which I'll leave for another day.
Let's take a quick look at 1) macro trends, 2) levels of engagement between vendors and customers, 3) competitive dynamics, and 4) looking ahead to some factors that could determine future success. The main focus here will be on eight companies (rough revenue estimates in parentheses):
Amazon ($48 billion)
Apple ($110 billion)
AT&T ($125 billion)
Facebook ($4 billion)
Google ($37 billion)
Microsoft ($75 billion)
Samsung Electronics ($135 billion)
Verizon ($110 billion)
1) Three macro trends are in play to shape the environment, and they overlap.
*First, at the content layer, the document Internet or the World Wide Web is being joined by both the "Internet of things" (sensors and such) and the social Internet: Facebook, Twitter, LinkedIn, Quora, Tumblr, YouTube, Blogger, and so forth.
*Second, Steve Jobs' vision of a "post-PC world" is coming to fruition at the hardware level: in the US, smartphone sales of roughly 95 million in 2011 are growing, while PC purchases were down 5%, to 71 million. Tablet sales are growing even faster, at roughly 20 million units.
*Finally, networking is changing as the fixed Internet is being replaced, especially outside the US, by mobile broadband.
Thus, an increasingly pervasive computing scenario involves a person using a mobile device to interact with or through a social network, rather than looking up information, and definitely not using a "productivity" application in Microsoft Office. In addition, the future of the mobile web is still being fought out: will an open standard (some version of HTML) or a closed but optimized app catalog dominate?
2) As computing grows increasingly personalized in this world, knowing what your customers are doing becomes highly advantageous. Not only can that knowledge increase engagement but it also helps pre-empt competition. In the same alphabetical order, here are rough and entirely subjective "engagement" scores for the eight companies:
Amazon (9 out of 10) holds browsing and purchase history, physical address, credit card data, reviews and wish list, and the address book of gift purchases
Apple (9) owns music and entertainment transaction data in great detail, physical location, and credit card info, and serves customers through both physical and virtual storefronts
AT&T (6) has an advantage in that it has customers' credit ratings, but addresses little mine-able behavioral data: even though the company knows my movements and important pieces of my family/friend/colleague network, the business model does little with this data -- except protect privacy better than other companies, which may be important going forward
Facebook (8) scores highest on deep social network understanding and ad reactions, but to date collects little financial data
At Google (7), while search is not always intent, it does provide key signals, and Android is serving up location and app data. Still, the company has no financial relationship with much of the consumer base.
Microsoft (5) collects software license data, has a weak mobile presence to date, but does gather gaming data on the Xbox segment
Samsung scores a 0: once devices enter the channel (Best Buy or Verizon stores), Samsung loses visibility. This structural distance could be risky, for Nokia as well.
Verizon: see AT&T
3) If we look at the big four players that dictate the state of play (Amazon, Apple, Facebook, and Google), the competitive dynamics are fascinating:
-Both Apple and Amazon move physical stuff, and use truly excellent supply chain management both to achieve their market leadership and to pre-empt competition. In contrast, Best Buy's store closures and other moves this week highlight the price of slow inventory turns and underutilized real estate.
-Amazon, Apple, Facebook, and Google are all building gargantuan data centers to support a cloud-based model of the future, a future that has few "best practices" thus far. Each is no doubt excelling at some facets while lagging in others, but such details are closely held.
-Because they are funded by direct customer revenue rather than ads, Amazon and Apple appear to raise fewer privacy concerns than Facebook and Google, whose businesses lose substantial value without their masses of personal data. Here's a great story on how creepy things can get in an app called Girls Around Me.
-The U.S. wireless carriers are former monopolies, now playing second fiddle to the smartphone operating system duopoly. AT&T is making a major push to get Windows 7 established among its employees (who have to trade in their current iPhone or Android device to get the Nokiasoft device) because it cannot thrive as "the iPhone company." It seems impossible that the former bully boys from Redmond are now looked on as the savior of carrier profitability, but such is Apple's current leverage.
-Google faces substantial competitive pressures: in an app-centric, social environment, crawling and organizing the document web does not confer the same advantage it did 5 years ago. Thus Google is apparently trying to crawl people's personal data to build the same kind of algorithmic model of reality that it can sell to advertisers. This of course raises privacy issues, which the company is encountering on a regular basis. Google+ is not taking off, it doesn't appear, while Google Play represents an attempt to catch up in the acquisition of credit card and personal purchase data.
-Even when they do view document links (an article, for example), people who get there via Facebook or Twitter might bypass Google entirely. Search still matters, of course, but it is no longer a navigational monopoly.
-Why was Samsung on the list? As the biggest company (by revenues) on the list, it is in some ways in the toughest situation. Amazon can beat Samsung up on TV pricing and grows stronger as physical retailers (Best Buy) are retrenching. At the same time, Google's pending acquisition of Motorola threatens Samsung's smartphone business. Even with the current Android arrangement, Samsung cannot capitalize on customer engagement. Should Google/Motorola become the "reference platform" for Android, Samsung could be the #1 mover of units but lag in operating system quality and features. Building an OS from scratch is both hard and risky (ask Nokia), so maybe Samsung will revisit HP's Palm webOS. AT&T and Verizon would be thrilled to have a third or maybe fourth viable OS, meanwhile, given that Research in Motion -- which, let us recall, invented the modern smartphone -- seems to be slipping beneath the waves before our very eyes.
4) What might we look forward to?
-Microsoft really needs to get traction in mobility, or it could be marginalized for a long time, so this week's mega-launch of the Lumia 900 on AT&T ("bigger than the iPhone") will bear watching. Tablets will be a similarly high priority.
-Will Facebook align with any carrier, OS, or device-maker more strongly than the others, or does it play Switzerland?
-Will regulators in the US and/or the EU constrain Google's crawling and organizing of personal data? Will a meaningful number of consumers rebel by defecting to Bing, other mail providers, and maybe iOS?
-Tech ecosystems can make for odd revenue flows. Just as Microsoft made lots of money off of Apple back in the day with Office for Mac, Google now makes more off Apple's iOS than Android even though the latter leads in market share. How long will that hold true?
-What will happen to the smartphone business model? Nobody bought a $500 PC from AT&T for $49, with the remainder of the purchase price covered by the monthly subscription revenue. Why should consumers buy smartphones differently? Today's mobile devices, tablets even more so, are closer to PCs than cell phones, the name notwithstanding.
-While 2 years seemed like a logical time frame for replacing a relatively cheap mobile phone, will people learn to hang onto today's more capable, more expensive smartphones longer? If so, what would this mean for handset manufacturers, app sales, and carriers? Will the secondary market for cellular-network devices become more visible? For understandable reasons, the carriers did little to encourage the purchase of used phones, but that could change.
If one takes price/earning ratio as a rough indicator of market confidence in a company's future prospects, it's currently a weird story (data from 30 March):
Amazon 148
Apple 17
AT&T 47
Facebook n/a
Google 22
Microsoft 12
Samsung 14
Verizon 45
Given that the smartphone market will eventually saturate in many countries when most everyone who wants one will have one, as we saw with cell phones, where will revenue growth come from after device sales slow in a few years?
Amazon will likely have success selling more stuff to more people, but the macro-level economic dynamics are worrisome here: with middle-class wage growth so flat, with student loan debt at record levels and getting higher every year, and with an aging Western population having many years to live after retirement, will consumption patterns shift? That said, Prime is a powerful tool for locking in buyers and driving instinctual purchase activity; no other company on the list has anything similarly powerful at the behavioral level.
How long can Apple retail the Midas touch with device design and marketing? Just this week a CNBC survey found that 51% of U.S. households owned at least one Apple device, with the average total being three. 10% of the non-owning households plan to buy an Apple device this year.
Network providers (AT&T and Verizon) can count on annuity revenue streams, but raising ARPU (average revenue per user) can be difficult, especially when the effort is coupled with expensive infrastructure build-outs: bandwidth costs money. Still, the market's future assessment as measured by P/E is far rosier for the carriers than for Apple.
Will personal stalking and invidious comparisons ever go out of fashion at Facebook? Many stories support people being happier after they quit feeling inferior to the site's glut of manicured on-line personas.
How long can Google ride the advertising train, particularly as the post-PC world reduces the impact of document search? What happens to the company's profitability once Motorola is folded in, given that Moto's revenues per employee are less than one third of Google's?
Investors apparently see little to inspire confidence in Microsoft's future, given such a low P/E ratio in the face of robust cash flows (recall from the list above that its revenues are twice Google's).
In addition to being vulnerable to a Google-Moto Android smartphone offering, Samsung's tablets are not positioned to grow fast enough to replace televisions' contribution to the overall revenue picture as global TV purchases are down for the first time in recent memory.
What's the biggest question mark for the future of the smartphone? It might be mobile payments. What is necessary for success in that market? Ease of use and trust, among other factors. Who's best positioned to lead on these dimensions? In a recent study by Entrepreneur magazine, Amazon and Apple both scored well on trust, and both companies have demonstrated outstanding achievements in usability. Google has been highly admired in the past but perceptions might be shifting. While their track records of protecting privacy might be relatively strong, meanwhile, wireless carriers have public perceptions still informed by decades of monopoly behavior. Perceptions can be changed, however, and here might be an opportunity for the carriers to claw back some ground from the handset companies.
Overall, all I can see are questions, with few answers. It would appear that privacy and trust will become more important as the intimacy of a really personal computer becomes more and more commonplace. Capitalizing on trust will be an exercise in paradoxes, one made more visible by the same social media environment that can spread bad news, proven or merely rumored, phenomenally quickly (cf. slime, pink, or Martin, Trayvon). Latitude for corporate screw-ups might be narrower than ever before, even as the stakes -- personal identity, not just a parcel or a transaction -- are higher.
Saturday, March 31, 2012
Wednesday, March 07, 2012
March 2012 Early Indications I: Financial oddities of tech companies
Three data points start this exploration:
1) According to Thomson Reuters, Apple is moving the entire S&P 500: "the fourth-quarter earnings growth rate for the S&P 500 is running at 8.4%, or 5.3% if Apple’s results are excluded.” Apple, one stock among 500, accounts for 4% of the entire index by market cap and 35% of all earnings growth.
2) Apple alone is larger, by market cap, than the entire materials, telecoms, and utilities sectors of the S&P 500; that single company would be the eighth largest sector of a broad market index. The Dow Jones Industrial Average, a price-weighted basket of 30 stocks that is widely used shorthand for large-cap stock health, can't include Apple (or Google, for that matter) because their over-$500 share prices would skew the DJIA, whose components have an average share price of only $57. That means a 10% slide in one of the Godzillas would be equivalent to a 3M or Alcoa falling off the map. (See Jeff Reeves, "What Would Life Be Like Without Apple?" InvestorPlace, February 28, 2012)
3) Apple, at $542 as I write, has a price/earnings ratio of only 15.5, relatively low for a tech stock with strong growth prospects (the company does, however, have an astonishing $100 billion in cash). For comparison, Salesforce.com has a P/E ratio of 6,431 according to Wolfram Alpha -- it earned 2 cents a share with a stock price greater than $140. More relevantly, Amazon's P/E ratio is a stunning 130, or about 9 times greater than Apple's even though Amazon's prospects intuitively feel riskier, less global, and more limited by physical inventory channels. In contrast, I'm told the Big 3 U.S. automakers all used to trade in a very tight window between 5 and 10 times earnings.
These connected facts raise a number of questions. Among these are some obvious ones: First, how can the DJIA reflect -- in popular discourse, if not among professional money managers -- the U.S. equities market without including such powerful outliers? Second, how long can Apple's run last? Third, what will Apple do with that cash? These are such good questions, I will leave all of them for others to address.
Instead, our concern here will be with the apparently distinctive characteristic of tech companies to be "sectors of one": why is it that IBM and Microsoft (in the past), Google, Apple, and Amazon (in the present), and Facebook (sometime soon) each built a business that for some period had no direct peers?
This isn't a scientific methodology, but in no other sector could I find consistent behavior like that noted above: pharmaceuticals is downright crowded. Airlines are problematic in terms of profitability, but there are still four major domestic carriers plus Southwest. Automaking has the semi-American Big Three, plus major market-share winners from Germany, France, Japan, and Korea. Boeing competes intensely with Airbus, Walmart is counterbalanced by Target, and AT&T has Verizon. NBC, CBS, and ABC were joined by Fox and a plethora of specialty channels. Even after all the mega-mergers, Bank of America is hardly a sector of one. The same goes for ExxonMobil in energy. As a diversified conglomerate, GE encounters Rolls Royce in power generation, Siemens in medical electronics, and a Caterpillar subsidiary in locomotives -- each competitor a heavyweight -- not to mention all manner of financial services companies that duel with GE Capital.
Looking at the present day (Amazon, Apple, Facebook, and Google) plus Microsoft in its period of dominance, it turns out that the companies that are so big and so minimally overlapping have a variety of explanations. There are also some fascinating tidbits that can't be causal but are surely more than coincidence.
1) I'll start with the tidbit, which may not be insignificant. Apple, Microsoft, Amazon, Google, and Facebook all share a common trait: they were led by their founders as CEO or the equivalent for the decisive period in their march to dominance. I think it's also significant that what the companies eventually became known for (with the exception of Facebook, possibly) is not what they set out to do initially. Thus the founders built great companies that successfully navigated paths of sometimes substantial change in both market scale and type.
2) Tech dominance is not synonymous with monopoly: Microsoft was sufficiently monopolistic to attract antitrust litigation; Amazon and Apple are anything but. Google might be an ad monopoly but not a smartphone one; Facebook appears to be headed for monopoly status for some period.
3) Each company navigated the open/closed platform decision successfully. Microsoft gained enormous market share but never built "delightful" devices; Apple locked most everything down but presents a coherent user experience. Google is sort of open with Android but the core search-business moneymaker is a black box. Amazon's inner workings are tightly closed but the cloud operations and retail businesses (including Zappos) exhibit creative innovations in openness. Facebook is a garden with walls even higher than AOL built in its glory years. This point of reference raises a significant question: leaders in one generation rarely lead the next. Sports Illustrated did not found ESPN. Microsoft didn't win search or social networking. Sony succeeded in neither MP3 players nor online music distribution. EA did not build Farmville. AOL was well positioned to build something like Facebook, it would seem.
4) Network effects are key in many tech businesses, and here Facebook and Microsoft are the big winners. Amazon, Apple, and Google benefit somewhat less: if my sister is on Facebook and I'm not, that matters. If she's on Word and I'm not and we want to share documents, it matters. If we have differences with regard to search engines, or Amazon Prime, or iPhones versus Androids, it's not a big deal. Thus the emergence of a dominant company in a sector does not mean that strong network dynamics are necessarily an intrinsic property of the market.
5) User experience is no predictor of dominance. Apple is obviously a star here; Facebook is widely disliked by its users and the mobile experience, in particular, is frustrating. Google's search bar could not be much more straightforward, but its other ventures have not been characterized by the same clean, direct simplicity. Microsoft has never been known to delight its many users: looking for the "start" button to shut the system down is but one example of its counter-intuitive execution.
6) Perhaps related to the fact that founders kept these companies at least somewhat agile (think of Bill Gates' "Pearl Harbor" speech in response to Netscape), few seem to have been driven by the increasingly problematic* pursuit of "shareholder value." Each founder, instead, worked to instantiate a vision of great, breakthrough products rather than to meet quarterly earnings targets. Amazon's Jeff Bezos' actions speak loudly here, frustrating shareholders who want the stock to behave predictably (as a recent Economist article illustrates). In fact, Bezos set expectations in his first annual shareholder letter, which he reprints annually: he openly declared a long-term rather than quarterly focus, so sharebuyer beware. Steve Jobs focused relentlessly on great products, not quarterly numbers. Google's pre-IPO document explicitly told potential shareholders not to expect traditional quarterly guidance on revenue targets, or other shareholder accommodations.
_________
*This may sound heretical, so let me explain. The average share of stock on the New York Stock Exchange used to be held as long as a decade (in the 1930s), but that time is now less than a year. That's an average, and averages are deceiving in information-rich environments. Given the incredible volumes generated by algorithmic trading (in which some firms hold a share for a reported average of 11 seconds), that 1-year figure is essentially meaningless, offset as it is with grandmothers holding stock for decades.
Thus the holding period for a share of stock is getting extremely short, though exactly how short nobody really knows. In addition, shareholding is increasingly indirect: hedge funds, mutual funds, professional money managers, and an individual share-owner all have different expectations of a given equity. As a result, for corporate managers to tie the fate of a company to the buying behaviors of today's markets, measured as they are in seconds or months, not years, makes little sense: few shareholders are betting on the long-term prospects of the company, the way its management, employees, and possibly customers must. The CEOs we're discussing here have that long-term view in mind, and in the process generate substantial stakeholder value for a broader range of people than only the stock-holding entities, whoever they may be at this moment.
What are the preferred ways to create shareholder value? Pay dividends and downsize, in the manner of many private equity investments, now so much in the news. What has made the tech giants great? Retaining earnings and reinvesting profits. Thus the current debate over Apple's cash position serves as a skirmish in this long-running debate. (For some academic context, see William Lazonick and Mary O'Sullivan, "Maximizing shareholder value: a new ideology for corporate governance," Economy and Society, v 29 (2000) pp. 13-35 )
-------------
In summary, what are the financial oddities of tech companies?
-Hypergrowth, with hockey sticks seen in no other markets
-The possibility of sectors of one, with no direct competitors
-Resistance to the tenets of the shareholder value school of management
Where might we look for such behavior next? I'll have some suggestions in another newsletter.
1) According to Thomson Reuters, Apple is moving the entire S&P 500: "the fourth-quarter earnings growth rate for the S&P 500 is running at 8.4%, or 5.3% if Apple’s results are excluded.” Apple, one stock among 500, accounts for 4% of the entire index by market cap and 35% of all earnings growth.
2) Apple alone is larger, by market cap, than the entire materials, telecoms, and utilities sectors of the S&P 500; that single company would be the eighth largest sector of a broad market index. The Dow Jones Industrial Average, a price-weighted basket of 30 stocks that is widely used shorthand for large-cap stock health, can't include Apple (or Google, for that matter) because their over-$500 share prices would skew the DJIA, whose components have an average share price of only $57. That means a 10% slide in one of the Godzillas would be equivalent to a 3M or Alcoa falling off the map. (See Jeff Reeves, "What Would Life Be Like Without Apple?" InvestorPlace, February 28, 2012)
3) Apple, at $542 as I write, has a price/earnings ratio of only 15.5, relatively low for a tech stock with strong growth prospects (the company does, however, have an astonishing $100 billion in cash). For comparison, Salesforce.com has a P/E ratio of 6,431 according to Wolfram Alpha -- it earned 2 cents a share with a stock price greater than $140. More relevantly, Amazon's P/E ratio is a stunning 130, or about 9 times greater than Apple's even though Amazon's prospects intuitively feel riskier, less global, and more limited by physical inventory channels. In contrast, I'm told the Big 3 U.S. automakers all used to trade in a very tight window between 5 and 10 times earnings.
These connected facts raise a number of questions. Among these are some obvious ones: First, how can the DJIA reflect -- in popular discourse, if not among professional money managers -- the U.S. equities market without including such powerful outliers? Second, how long can Apple's run last? Third, what will Apple do with that cash? These are such good questions, I will leave all of them for others to address.
Instead, our concern here will be with the apparently distinctive characteristic of tech companies to be "sectors of one": why is it that IBM and Microsoft (in the past), Google, Apple, and Amazon (in the present), and Facebook (sometime soon) each built a business that for some period had no direct peers?
This isn't a scientific methodology, but in no other sector could I find consistent behavior like that noted above: pharmaceuticals is downright crowded. Airlines are problematic in terms of profitability, but there are still four major domestic carriers plus Southwest. Automaking has the semi-American Big Three, plus major market-share winners from Germany, France, Japan, and Korea. Boeing competes intensely with Airbus, Walmart is counterbalanced by Target, and AT&T has Verizon. NBC, CBS, and ABC were joined by Fox and a plethora of specialty channels. Even after all the mega-mergers, Bank of America is hardly a sector of one. The same goes for ExxonMobil in energy. As a diversified conglomerate, GE encounters Rolls Royce in power generation, Siemens in medical electronics, and a Caterpillar subsidiary in locomotives -- each competitor a heavyweight -- not to mention all manner of financial services companies that duel with GE Capital.
Looking at the present day (Amazon, Apple, Facebook, and Google) plus Microsoft in its period of dominance, it turns out that the companies that are so big and so minimally overlapping have a variety of explanations. There are also some fascinating tidbits that can't be causal but are surely more than coincidence.
1) I'll start with the tidbit, which may not be insignificant. Apple, Microsoft, Amazon, Google, and Facebook all share a common trait: they were led by their founders as CEO or the equivalent for the decisive period in their march to dominance. I think it's also significant that what the companies eventually became known for (with the exception of Facebook, possibly) is not what they set out to do initially. Thus the founders built great companies that successfully navigated paths of sometimes substantial change in both market scale and type.
2) Tech dominance is not synonymous with monopoly: Microsoft was sufficiently monopolistic to attract antitrust litigation; Amazon and Apple are anything but. Google might be an ad monopoly but not a smartphone one; Facebook appears to be headed for monopoly status for some period.
3) Each company navigated the open/closed platform decision successfully. Microsoft gained enormous market share but never built "delightful" devices; Apple locked most everything down but presents a coherent user experience. Google is sort of open with Android but the core search-business moneymaker is a black box. Amazon's inner workings are tightly closed but the cloud operations and retail businesses (including Zappos) exhibit creative innovations in openness. Facebook is a garden with walls even higher than AOL built in its glory years. This point of reference raises a significant question: leaders in one generation rarely lead the next. Sports Illustrated did not found ESPN. Microsoft didn't win search or social networking. Sony succeeded in neither MP3 players nor online music distribution. EA did not build Farmville. AOL was well positioned to build something like Facebook, it would seem.
4) Network effects are key in many tech businesses, and here Facebook and Microsoft are the big winners. Amazon, Apple, and Google benefit somewhat less: if my sister is on Facebook and I'm not, that matters. If she's on Word and I'm not and we want to share documents, it matters. If we have differences with regard to search engines, or Amazon Prime, or iPhones versus Androids, it's not a big deal. Thus the emergence of a dominant company in a sector does not mean that strong network dynamics are necessarily an intrinsic property of the market.
5) User experience is no predictor of dominance. Apple is obviously a star here; Facebook is widely disliked by its users and the mobile experience, in particular, is frustrating. Google's search bar could not be much more straightforward, but its other ventures have not been characterized by the same clean, direct simplicity. Microsoft has never been known to delight its many users: looking for the "start" button to shut the system down is but one example of its counter-intuitive execution.
6) Perhaps related to the fact that founders kept these companies at least somewhat agile (think of Bill Gates' "Pearl Harbor" speech in response to Netscape), few seem to have been driven by the increasingly problematic* pursuit of "shareholder value." Each founder, instead, worked to instantiate a vision of great, breakthrough products rather than to meet quarterly earnings targets. Amazon's Jeff Bezos' actions speak loudly here, frustrating shareholders who want the stock to behave predictably (as a recent Economist article illustrates). In fact, Bezos set expectations in his first annual shareholder letter, which he reprints annually: he openly declared a long-term rather than quarterly focus, so sharebuyer beware. Steve Jobs focused relentlessly on great products, not quarterly numbers. Google's pre-IPO document explicitly told potential shareholders not to expect traditional quarterly guidance on revenue targets, or other shareholder accommodations.
_________
*This may sound heretical, so let me explain. The average share of stock on the New York Stock Exchange used to be held as long as a decade (in the 1930s), but that time is now less than a year. That's an average, and averages are deceiving in information-rich environments. Given the incredible volumes generated by algorithmic trading (in which some firms hold a share for a reported average of 11 seconds), that 1-year figure is essentially meaningless, offset as it is with grandmothers holding stock for decades.
Thus the holding period for a share of stock is getting extremely short, though exactly how short nobody really knows. In addition, shareholding is increasingly indirect: hedge funds, mutual funds, professional money managers, and an individual share-owner all have different expectations of a given equity. As a result, for corporate managers to tie the fate of a company to the buying behaviors of today's markets, measured as they are in seconds or months, not years, makes little sense: few shareholders are betting on the long-term prospects of the company, the way its management, employees, and possibly customers must. The CEOs we're discussing here have that long-term view in mind, and in the process generate substantial stakeholder value for a broader range of people than only the stock-holding entities, whoever they may be at this moment.
What are the preferred ways to create shareholder value? Pay dividends and downsize, in the manner of many private equity investments, now so much in the news. What has made the tech giants great? Retaining earnings and reinvesting profits. Thus the current debate over Apple's cash position serves as a skirmish in this long-running debate. (For some academic context, see William Lazonick and Mary O'Sullivan, "Maximizing shareholder value: a new ideology for corporate governance," Economy and Society, v 29 (2000) pp. 13-35 )
-------------
In summary, what are the financial oddities of tech companies?
-Hypergrowth, with hockey sticks seen in no other markets
-The possibility of sectors of one, with no direct competitors
-Resistance to the tenets of the shareholder value school of management
Where might we look for such behavior next? I'll have some suggestions in another newsletter.
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