It's always interesting to take a look back on articles like these and see how the opinions / predictions of the author pan out. There has always seemed to be what is in my opinion a largely narrow minded short term oriented negativity directed towards the Google method of moonshots / bets. In hindsight now in 2019, it's clear with signs of growing stagnation on Apple's side and continued successful innovation and growth of Alphabet companies within vastly diverse industries (Verily, Waymo, Malta, etc.) which of the two methodologies was the better choice.
I wonder what the future will hold? Culture seems like the strongest indicator for whether changes can be made. Without the sort of long term vision Jobs had to guide the company from the top down, successful pivoting depends on if internal company culture can support a bottom up revitalization I think.
I disagree with the innovation portion of your comment, but definitely, advertising is an extremely strong foundation of consistent steady growth / revenue. Whatever the economic forces at the time, Google will always continue to provide. With Apple on the other hand it's foundation currently depends on hit-driven successes requiring repeated 2 year cycle refresh purchases from it's customers to sustain it. The issues with this are evidently shown.
As to your comment on innovation, Apple has largely squandered it's source of foundational income cornering itself into a niche, such that though it may be extremely innovative in it's area (Apple has some amazing processor design for example), is fundamentally constrained by the limited pieces it has to work with.
Basically, instead of undergoing a necessary evolution like we've seen from the progression of Google -> Alphabet, Apple has failed to scale itself in a way where it can keep up. This by no means is meant as a sleight to any Apple employees though, as I know from first hand experience that some of the best and brightest people are working there. It's just a matter of how scaling works. Horizontal scaling allows for unlimited growth, whereas vertical scaling quickly reaches an asymptotic ceiling.
Seeing that nothing Google has done outside of selling ads has been profitable and we can assume that all of Apple’s products generate a profit, how can Google’s ventures be considered a “success”?
A success in that it has transformed the public image of the worlds largest and effectively "only" internet ad platform into one of a benevolent tech company working on problems that will help the world.
Google for most of the last decade has had it 'easy' though. The natural expansion of its ad revenue has reduced the need for it to turn some 'evilness' dials to keep revenue and profit growing. With Apple its very straight forward, they sell things, and if you want their services you pay for them.
A success in that it has transformed the public image of the worlds largest and effectively "only" internet ad platform into one of a benevolent tech company working on problems that will help the world.
How much has that goodwill improved profitability? What were people going to do, revolt and use Bing?
Well, for one, it keeps Antitrust somewhat at bay. But, its beyond search, if you want to monetize your site with ads, its pretty much impossible to avoid using Google.
I appreciate your considered reply to my admittedly flippant reply to what I considered an unconsidered statement, so I'll try to return the favor.
Alphabet's approach to innovation is to throw spaghetti at the wall and see what sticks. I’m not disparaging that approach, it’s probably what I would do if I had all the money in the world. But I’m not convinced that any of these “moonshots” are amounting to much yet.
Apple has been described by many as the world’s largest startup. They’re very careful with their focus and resources, even to the point of killing off successful products (not just iPods, but things like their routers and printers). They _could_ just spend money and grow, but they know that would lead Apple to not being Apple anymore.
So what is Apple? A strangely conservative company with a clear vision of the future that they approach slowly and methodically.
Apple brought us the “touch future” and the truly “personal computer” (the one you take everywhere in your pocket). We still haven’t fully realized this potential and Apple is still building on it. Look me up in ten years and let me know if they’ve hit that vertical ceiling.
I wouldn't call google's products vaporware. There are definitely five that I have used. Search, Gmail, Maps, Youtube, and Android. I barely use google search anymore (DDG is my major driver) - I'm not too content with Gmail anymore, and my youtube use has gone down since their ad strategy has changed.
Probably Maps and Android are the two products they do that I would consider 'quality'.
I'm not happy with Tensorflow, Golang, or Kubernetes.
There was an article about how golang takes a very classist attitude... There are programmers who use go, that are the peons, and the programmers who write go, who are anointed.. like hashmaps breaking the typesystem.
It feels like a lot of the things that happen like if err != nil are code smell. I wrote a cli in go and wouldn't mind it again but I program in elixir now and the emphasis on developer joy is refreshing (but it makes wise choices, e.g limiting the scope of macros to lexical)
You have got to be joking. Looking at the revenue numbers, it's clear that Apple is more diversified than Google. The declining iPhone sales are a short term problem. People are just keeping the devices for longer, not abandoning the ecosystem. Their services and wearables are seeing an impressive growth. I think the watch will grow even faster once Apple makes it a completely independent device.
The difference between these two companies is that one publicizes the stuff it's working on and rushes it to market, while the other keeps it all secret until it's ready.
Also, Apple is working on AR glasses(rumored to be announced next year), self-driving car and are making a big push into digital health.
Apple is far from doomed, they still have a lot of room for growth.
If they announce AR glasses that look like anything besides a regular sized, normal looking, but super stylish pair of sunglasses running amazing software that always works, with a killer feature that no one even knew they needed, it will be safe to end the tired debate of whether Steve Jobs was the biggest reason that they regularly made great things.
I do agree though that Apple is more diversified than a company that keeps selling super-expensive beta tests that get killed after the first or second try doesn't work.
Alphabet is doing all of these things and more though no? With much more success too from what I can garner.
Waymo is the defacto number one leader in self-driving, whereas Apple’s self driving unit is having huge issues internally. Similarly, didn’t Verily just receive a $1 billion dollar investment a few days ago with Silver Lake as the primary backer for it’s various life science hardware/digital technologies it’s working on like LiftWare [1], Project Baseline [2], etc?
> Alphabet is doing all of these things and more though no? With more much success too from what I can garner.
Apple has more diversified revenue than Alphabet. Why would you say Alphabet is more successful?. All this tells me is that Apple thinks long and hard before publicizing what it's working on, they won't show us prototypes.
> Waymo is the defacto number one leader in self-driving, whereas Apple’s self driving unit is having huge issues internally with getting anything done.
ALL of Apple's reported problems had to do with the MAKING of a car, not autonomous systems. People just don't get this distinction. We will know how far their system is at the end of this month when the DMV releases their disengagement report. By the way, recent developments indicate that Apple is back to building an electric self-driving car instead of a self-driving platform.
Apple is almost 100% definitively not working on a molten salt energy storage solution I can promise you. And the reason is because it’s just not in it’s corporate structure or culture. Far too constrained / trapped in it’s niche to expand outwards into such a vastly different market.
Again, Apple has a more diversified revenue stream than Alphabet and it is growing. Contrary to what you are trying to imply, Apple is actually more successful than Alphabet. The difference is they don't tell the world about their internal projects.
Even if we did it that way, Apple still comes out ahead.
Also, that 86% is basically from Google Search ads and YouTube. YouTube's quarterly revenue is estimated to be just under $4 billion. That puts Google Search ads at around 72%, which is still higher than the iPhone's 59%.
The notion that Alphabet's "other" projects succeeded while Apple's languished is completely baseless.
It also includes ad network ads on non google properties (double click and such), which is arguably more diverse than iPhone an iPad.
Google's last quarterly report says 24bn in revenue from Google properties, and ~5bn from non-google properties. If we add in that YT is a separate property too, we get ~60% from Google, ~12% from youtube, ~15% from network, ~14% from hardware/android/cloud.
(I work at Google, but I am using public figures from the Q3 investor relations document and your analyst number for YT revenue).
>Google hasn’t shown an ability to ptofitably sell anything but ads.
The $31B revenue would be huge for almost any company. The magnitude of Google's largest cash cow, a glowing golden cow towering over the farm house, makes their normal-sized livestock look small. Because everything is so insignificant compared to advertisements, Google has killed projects that could be the entire product of a sustainable smaller company.
How many companies make 2.6B/year in profit? Rather, how many startups sell for over 1B? Comparing it to another gigantic business is missing the point in the same way that comparing it against ads is. Google has had many giant successes that only appear small when juxtaposed against unimaginably enormous successes.
Consider that Google offers the operating system for free, the software for free, and only charges OEM for optionally including Google's software on their phones, and only recently began selling its own phones...$21 billion of profit is pretty damn big.
> Malta’s solution is to store electricity as heat in high temperature molten salt and cold in a low temperature liquid for days, or even weeks, until it’s needed. The key insight behind Malta is that electricity can be stored as heat in high temperature molten salt and cold in a low temperature liquid for days, or even weeks, until it’s needed.
Does nobody proof read these things before they get published?
Perhaps this portion is what confuses you: stores electricity as heat in "the form of a combination of a" high temperature molten salt and cold in a low temperature liquid. This would be an explicit wording which might help to clarify things, but is not used due to redundancy.
The 2 consecutive sentence both contain the identical LONG fragment "as heat in high temperature molten salt and cold in a low temperature liquid for days, or even weeks, until it’s needed"
And you didn't even mention GV, CapitalG and other investment arms. Well forget the others, I am surprised that Google's investments into Oscar, Magic Leap, SpaceX, Impossible, Slack, Stripe,Lyft,Uber, Snap, AirBnb aren't talked about much.
I think these can be counted as successful, guaranteed future cash troves. In 10 years, all these are going to be worth a lot. Google should hold onto these. It's like a mini Berkshire hathaway is brewing up.
> By the way, recent developments indicate that Apple is back to building an electric self-driving car instead of a self-driving platform.
This is the correct approach, yet a lot of people still haven’t internalized this subtle distinction.
For a self-driving platform to deliver on the promise of being more reliable than a human driver, it has to constantly monitor two environments: its internal environment and its external environment, but most discussions dwell on the external.
External environment failure in the worst case scenario can lead to loss of life. OTOH, internal environment failure can lead to internal inconsistency and in the worst case, a machine shutdown; but because cars share the road with other road users, a sudden failure in one car can lead to multiple car accidents and in a worst case scenario, several lives lost. In a way, the failure outcomes are identical.
An electric car is far less complex than an ICE car meaning there are fewer moving parts and subsystems whose state needs to be kept track of constantly. This is where electric drivetrains hold a lot of promise: a low complexity machine can be made more reliable at a lower cost than a high complexity machine.
TIL I learned that contrary to Apple's own statements, it is more diversified than its primary competitors like Google and MS.
Oh wait, no I didn't. Because of those 3, Apple is the least diversified company, and it's major revenue source is driven by a single line of products (the iPhone) which drives nearly every one of its other major revenue sources (i.e., the App Store). The double-whammy effect is part of why investors are so concerned: users not buying new iPhones means that users are also buying fewer apps in the App Store.
This is not an existential issue vis-a-vis Apple, Google, or even about capitalism.
It's really a CFO's problem, financial engineering.
Companies that sit on massive cash all have this problem.
The difference is not one of culture, it's the fact that Google is still controlled by powerful founders who can act in different way, i.e. 'maintain hard power' through share voting 10x's ... or even via 'soft power' just by being founders.
Apple has more of a regular CEO.
There are a variety of interesting things about this, but it's mostly on the financial side, and won't make a spec of difference in the rest of the company.
Neither Apple nor G will be operationally hindered, M&A and other activities will be just the same.
As founders move away from Alphabet, I bet they take a few fewer moonshots though ...
To pay or not pay dividends is economically a net neutral exercise. This is a matter of investor relations, and an issue mostly for the CFO of the company and has little material relationship to the nature of the company.
It's not really a fundamental issue of control, it's just one of the many issues that pops up in the day to day of organizations that are cash flush relative to their income.
Capitalism is characterized by lack - lack of government control, intervention, and partnership. Both Apple's and Google's have been heavily characterized by anti-capitalistic phenomena, which is not the same as how the article spins it.
The future of capitalism includes tons of stock crashes anyway...
And I don't think his argument was "Apple is infallible", but "Apple's model will prevail (or is good) for the future of capitalism". Not that Apple or any company following the model is guaranteed to always have increased stock value forever.
The reason that fails is that in practice the labourers generally decide to spend the money now, rather than invest it in growth, so businesses run that way tend to fail.
There are very, very few counter-examples in narrow low-growth specialised markets, but the general rule has been shown to occur countless times across economies as small as communes to as big as a superpower.
The reason capitalism works is that capital generally flows to people with a track record of making efficient, effective, growth (and therefore jobs) generating investments. Which is what you want. There is some wastage of course, but far less than in planned economies (at least all of them so far) and capitalism tends to be very efficient at recycling that wasted capital back into productive enterprises.
One example is a recent study of the Yugoslav economy and what happened after control of production was shifted to worker councils. Employment and growth plummeted.
"Amongst other things, these work councils were now free to decide on the distribution of income between wages and investment. In one sense, this policy change was a success: income per worker increased and wages became a bigger share of the economic pie. However, labour-managed firms seem to have reaped such rewards by hurting other members of the labour force, restricting the employment of new workers so as to limit the worker-based labour market competition that could scupper the wage demands of the 'insiders'."
> The reason that fails is that in practice the labourers generally decide to spend the money now, rather than invest it in growth, so businesses run that way tend to fail.
AFAIK, there is no evidence that labor coops fail at a greater rate than conventionally structured businesses. If you have such evidence, I’d love to see it.
The reason capitalism in general fails - and markets implode with tiresome predictability - is because money tends to be taken out of companies and given to shareholders instead of being spent on R&D or growth.
Capitalism fundamentally doesn't distinguish between "growth" from zero-sum rent-seeking, which simply benefits one class by impoverishing another, and growth from innovation and invention, which - at best - creates entirely new markets.
Too many shareholders consider blue sky R&D with no specific return schedule an outrageously risky gamble and a misuse of money that should have been paid to them.
There's huge swathes of evidence. Read any decent economic history of the Soviet Union, or Maoist China. Or the analysis of the effect of handing power to workers councils in Yugoslavia, which I provided in answer to another such request. It was so common I even have family that watched it happen. My wife is Chinese, from Hohhot. Her father worked at a boiler factory and her mother at a textiles mill, both of which were run by worker councils and were badly mismanaged. They suffered appallingly under Maoism. This is one of the reasons this issue triggers me a bit.
> Read any decent economic history of the Soviet Union, or Maoist China.
Which would be relevant if I was asking for evidence that Leninist vanguardism and it's derivatives were adequate systems to overcome the disadvantages poorly developed economies engaging in large scale geopolitical conflicts with advanced industrial powers face. Or if I was asking about evidence about the utility of top-down state central planning.
But labor cooperatives don't require a state featuring Leninist vanguardism or top-down central planning, and in fact are a well-known practice in modern Western mixed economies like those in North America and Western Europe, and there are a lot of well-established observed differences between labor coops and classical capital-rents-labor firms within such systems, but I can't see any evidence that a higher failure rate for coops is one of them.
Read my comment above again, referencing the example I cited across thread of the effects on the Yugoslav economy. I'll make it easier this time[0]. Yugoslavia is a perfect example actually because it wasn’t subject to Leninist Vanguardism, didn’t have the same competitive issues with the West, furthermore the worker councils weren’t subject to anywhere near as restrictive central planning constraints seen in most Marxist states, so it pretty much ticks all your boxes.
Put it the way. What are the conditions in western democracies that are hostile to the success of workers cooperatives? We enjoy pretty egalitarian, fair legal and regulatory environments that aren't obviously hostile to them. Even if they were, many European countries have frequently had explicitly socialist governments and have had plenty of time to establish legal frameworks compatible with voluntary collectivism. Why hasn’t it worked?
Capitalism has only existed for about 300 years. And it's been shown to give rise to Fascism, destruction of the Planet, countless civilians dying everyday, countless homeless people while we have countless houses unoccupied.
Regular boom-and-bust that keep people poorer and lessen social spending. It's very good at allowing the 1% exploit us and feed you lies.
> There are very, very few counter-examples in narrow low-growth specialised markets, but the general rule has been shown to occur countless times across economies as small as communes to as big as a superpower.
Yet we have Mondragon Cooperatives in Spain.
> but far less than in planned economies (at least all of them so far)
What I am specifically talking about is Worker-owned-and-directed-enterprises [1]. Planned economies is just state capitalism (but even that, you see China? the fastest growth in the history of mankind?).
> and capitalism tends to be very efficient at recycling that wasted capital back into productive enterprises.
> Capitalism ... been shown to give rise to Fascism
Historical nonsense. Fascism is a direct descendent of Marxist socialism with class consciousness replaced by nationalism.
And the Soviet Union and Communist China were state socialist societies. Neither of which were known for their humanity and environmental consciousness.
You can't just define capitalism as "all the bad stuff". Well you can but it's disingenuous and wrong.
Pure capitalism has never existed and wouldn't work anyway. Same goes for pure socialism.
Organisations like Mondragon and John Lewis have shown that models that mix the two can be successful. That message is not helped by a wilful disregard of facts.
> Fascism is a direct descendent of Marxist socialism with class consciousness replaced by nationalism.
Pure Nonsense. Fascism is simply extreme nationalism. It is believing that one's race is superior which makes you hate immigrants. Makes you build up walls to keep them out. This is born out of the constant exploitation of the capitalists.
When the people stop believing the Capitalist lies, you start getting demagogues like Trump.
This has nothing to do with Marx and Socialism.
Just to repeat, Soviet Union and Communist China Vangaurdism has nothing to do with Worker-owned-and-directed enterprises.
Soviet Union and Communist China is very different from Mondragon and John Lewis. Power is decentralized as much as possible. Managers and Executives (if needed) are only in power for a few months and is subject to call any time. Unlike today where C-level persons act like Feudal Lords.
There have been very few examples at all, and most that exist are from oddball times, or circumstances. One example I know of are Israel's "labor-owned^" companies of the 50s and 60s, notably "eged" the bus company.
There were pathologies but not necessarily what you might expect. Notably, employees objected to expanding the employee pool. This led to a system where old employees were shareholders and new ones were not. This eventually led to the collapse of the system, as much for ideological (classism) reasons as practical ones.
The dynamics are poorly understood, imo. One possibility is that this type of company will tend to maximize earnings-per employee. Without the ideological baggage, I wonder if a dual classes if employees isactually a good idea.
As this article demonstrates, the lines between ownership, governance on paper & governance in practice are not straight.
^"labor" was, att, the dominant institution of the country with the ruling party, largest medical network, etc. It was a new country, post holocaust solidarity, war, socialism... exceptional circumstances and not a perfect example, certainly.
Mondragon Cooperatives, possibly the largest worker owned and directed enterprise today. Not perfect but it's a good case study to demonstrate that employees being in control results into better quality products and less lay-off (as seen during regular capitalist recessions).
> The paths taken by Apple and Google manifest alternative answers to one of the main questions facing capitalism today: What should public companies do with all of the money that they’re making? Even as corporations have brought in enormous profits, there has been a shortage of lucrative opportunities for investment and growth, creating surpluses of cash. This imbalance has resulted in the pileup of $2 trillion on corporate balance sheets.
Better to pay the workers. It's an absolute shame that Amazon it's making so much money and treating their workers like shit.
> Unions who represent Amazon workers have characterized its work conditions as “draconian” and physically demanding to the point of causing injury. Francisco Hervias, a worker who protested on Black Friday in Madrid last month, said at the time that he nearly lost his hand on the job.
Instead of targeting specific entities, the better way would be to introduce structural changes in a American society via federal laws mandating paid leave minimums and removal of non-monetary compensation like health insurance benefit.
A reduction in supply of labor will lead to higher wages, at the same time providing people with less stress and more time to participate in their community.
They aren't starving because of Google, they're starving because of the dysfunctional governments in those countries. Donating can make it worse because a sufficiently dysfunctional society can pervert anything.
With respect you're being pointlessly petty. The argument is not that Google should donate to starving people in countries in which it's not operative. The argument is that instead of further pampering it's extremely privileged workforce indirectly via reinvestment or directly via higher pay, it should contribute more back to the global society from which it profits by paying its taxes fairly.
How can you argue aginst this when Google workers are collectively amongst the best remunerated in the world, Google is notorious for massive-scale tax avoidance and hundreds of millions of men, women and children around the globe are dying because they lack basic resources for life: Food, water and healthcare.
The United States government is not the "global community." Paying taxes to the US government does little to combat death and starvation in third world countries. Maybe we can think of some good reasons for Google to contribute to American society, but starvation in third world countries is a red herring.
Fairly interesting read. It's about their accumulated piles of cash, what investors think about it and founder-investor dynamics.
The main comparison point and conclusion is interestingly straightforward: Google gets to keep their pile o' cash because founders still control voting rights. The economic analysis is traditional (principal-agent issues) but I think it undersells the differences from theory.
Eg, investors are still happily buying "founder controlled" shares like Google and Tesla even though the principal-agent problem is huge on paper. Reminds me of musk said: spaceX can't have public investors because going to mars doesn't give you the best risk adjusted returns. Investors will want to launch satellites for cash, not risk everything to go to mars where there are no customers.
The hitch is that these investors will still buy the shares even if the mission is "mars." They'll campaign for a more lucrative mission and eventually win.
Perhaps these "founder control" arrangements are a way of creating kinds of "investment doctrines." Either way, their existence (beyond founders that simply own lots of shares) suggests that public shares create governance problems that aren't explainable via principal-agent or some other traditional economic explanation.
Either way, their existence (beyond founders that simply own lots of shares) suggests that public shares create governance problems that aren't explainable via principal-agent or some other traditional economic explanation.
I'm not sure I'd phrase it this way. Suppose option A earns you 5% and option B earns you 6%. But you, as a founder, really prefer option A to option B. Then you better not take your company public, because your personal preference doesn't match the market preference.
In your example, going to Mars earns less money than selling the satellites, and Musk really wants to go to Mars. I don't see this as a governance problem -- Musk's pleasure in going to Mars plus the returns from doing that exceed the public's pleasure from the returns only. So since this is a bit of a vanity project, it can't be publicly controlled and remain a Musk vanity project. That's not a governance problem, it's how governance is supposed to work.
But then you say that investors are happily buying these shares? Well, it's an expected income stream, so the shares are being priced. Happiness has nothing to do with it. A 5% return is still worth something, even if the share price would go up should the strategy change. In no model would the price of the suboptimal income stream be zero.
The real question here is what happens to the visionary iconoclast who knows that going to Mars will result in a higher return. For them, it's not a vanity project but some kind of private belief that is more accurate than the market belief. In that case, non-voting shares will outperform in the long run. We can say that Steve Jobs was such a visionary and maybe Musk is, too. But how much do you want to bet on that? And is that really an argument for one type of structure over another? That your average company is run by some visionary genius that is smarter than the market? Is that a governance problem? No, not at all.
I'd say the tension between your first paragraph and your last gives us the grey area that I was talking about.
Ultimately, the big difference between whiteboard and reality in the "A or B" scenarios is that the rates of return are not known. You can represent the scenario such that an investor has some working risk-weighted estimate but... Idk. I think a rocket company just doesn't lend to that type analysis, in practice.
The long term comes down to belief in one way or another.
Personally, I suspect that the reason for these arrangements in the face of traditional economic rationale is kinda meta.
We already have a lot of large companies under traditional, often institutional shareholder control. This tends to yield a uniformity and leaves certain opportunities on the table, whichever strategies get reliably vetoed by a generic, institutional shareholder elected board.
But my point is that public ownership generally calls for public beliefs about returns to drive the show. The gap of the visionaries can usually be handled by private ownership. Let the visionary obtain funding elsewhere if they cannot convince the public their plans are better. I don't see this as a governance problem but as kinda the definition of public versus private ownership.
if they cannot convince the public their plans are better
I don't think we're very far apart. I just think that statement leaves some room that is (possibly) being filled by these "founder controlled" agreements. For one thing, they can convince investors. They do. Elon et al are great at getting people to invest. There's just no "enterprise grade" way of actually making that deal with the public.
In any case, why can you sell shares that don't vote but not shares where you still go to mars, never pay dividends or whatever. If investors buy them, who loses?
I wonder what would happen to Google's share price if founder control was suddenly ceded. Theoretically, it should go up, no? But, I suspect it mightn't. Market rationality is a relative term.
In theory, I don't see a problem with this type of share structure and don't believe an investor would lose anything by buying this stock at an appropriate price. Shares with fewer rights will sell at a discount to shares with more rights.
In practice however, there are good reasons why the exchanges and others want to discourage these types of corporate structures. It is difficult to price the risk of a CEO going off the reservation, so to speak, and investors will be unable to pressure the CEO or replace the board in case the CEO ends up not being a good steward of investor funds. There are always principle agent problems, and having the CEO on a longer leash means that pricing the stock becomes a lot harder, and you will end up with a lot of mispriced assets, certainly ex-post and probably ex-ante. This is true even if the average of all such assets is properly priced. That is a welfare destroying thing. E.g if the universe contains two stocks that should each be priced at $1, and one is priced at $2 and the other at 50 cents, then this is welfare destroying. So anything that adds opacity to long run returns is bad for the market -- you can't just say that investors will properly discount the opacity. This is why we have disclosure regulations rather than letting firms not disclose financial information and letting the market price that.
IMP it would be much better for Musk or someone else to create a charity with the goal of going to Mars and endow it with ownership of stock of for profit firms like SpaceX. This is cleaner than having a for profit firm adopt a pseudo charitable role.
You also have to think of what will happen to these super voting shares after the CEO/founders are gone. Will their kids share the same vision and foresight? Having these types of structures creates a lot of practical problems even though in a simple theoretical model there is nothing wrong with doing it.
Would you put your pension in it? Otherwise, it's just a donation to a private company.
How about a share/bond where you get your money back with interest if spacex plants a lichen on mars by 2029. The only problem is this disincentivizes spaceX from actually doing it so we need speculators (elon's nemesis, the short trader) to flip the bet so you're aligned (long) on SpaceX's success.
I have always wondered what the value of common shares really is in a founder controlled voting corporation. For example, SNAP, which is fairly pure, what does that share of common SNAP give me? It seems very much a baseball card. It gives me something that while other people see it as valuable it holds value and it also coincidentally refers to something popular in real life.
In the end though, if the founders of SNAP wanted to sell SNAP, they'd sell their voting shares. If they wanted to pay dividends, they'd pay dividends to only the voting class. Why would they ever need to bother with including common, what could the common shareholder do, ask a question at the shareholder's meeting?
Q: "In the buyout offer from Facebook, Facebook is buying the Preferred Series of shares only, leaving SNAP as a subsidiary of Facebook. Facebook is planning on a tight integration, one that will essentially turn the SNAP app to a rebranded Instagram. What does the common share holder get out of this deal?"
A: "Well, the SNAP common shares still exist, they remain non-voting, non-dividend shares in the subsidiary. Next question."
Q: "So, the founders get paid, but common doesn't get anything? As a common shareholder, I object and I don't agree to this buyout"
A: "To answer your question, if you look at your shareholder agreement, as an owner of SNAP common, you get the right to ask a question. You will still retain that right to ask questions. As for your second statement, please ensure your spoken comments take the form of questions please."
I think this goes for all founder controlled companies, but even more so when the class structure is used to move voting rights to just the founding shareholders.
The article discusses which group of stakeholders should have the most control over the company: upper management, or investors.
But companies have not just two, but at least 4 groups of stakeholders. Investors and management, but also employees, who also depend on the long-term health of the company, and customers, who want the company to be a reliable partner that's healthy enough to continue to support their products.
I'd like to see a control structure that balances all these stakeholders, rather than choosing one that has all the power.
All power in one place is certainly easier, but also more open to abuse, whether it's hedge funds looting the company, or Enron-style upper management looting the company. A company is not doing a good job unless all 4 groups of stakeholders are happy. (I suppose you could consider society a 5th stakeholder that doesn't want the company to pollute or create other harmful side effects.)
Someone once told me that "exit is more powerful than voice". I think they meant that the market is a better democracy than voting.
Capitalism traditionally gives power to customers through their ability to choose not to buy the company's products. Works better for Apple than for Google, though we pass laws to mitigate some externalities (privacy).
Workers get a say in a similar way. If a company isn't worth working for, they won't work there. This is truer for companies like Google and Apple than most (even though they are enormous) because the labour market is so tight. Again, though, we pass laws like allowing labour unions (which are a price-fixing mechanism) to address imbalances of power.
Funnily enough, this is kind of on-topic for the article. Ownership in a company usually gives you "voice" and "exit", and these fancy share classes effectively take away voice and just leave the average shareholder with exit -- "If you don't like how we run the company, invest in someone else."
I think the reasonableness of it is a question of effectiveness rather than morality or logic, to be honest, but I do like the idea that Zuckerberg's board proposed to him when considering an additional share class+split that would have entrenched his power: "Your shares will become regular stock when you stop personally being CEO." They wanted him to run the company how he wanted to run it, but didn't want him to hand-pick a successor.
Still, a bit perverse that negotiation. Technically Zuck had the votes, so I guess (?) the legal mechanism of that action was "We won't sue you for not representing our interests if we do it this way." (Voting stock or no, shareholders always have some legal voice.)
Voting with your dollars doesn't work in all cases. Possibly not even in most cases. Markets aren't that transparent, and more importantly, you buy based on the company's past behaviour, whereas if your product requires support, it's their future behaviour that matters to you. You buy based on past product quality, but current product quality is what matters.
You may buy a product from a great company with excellent support, and then a hedge fund comes along and fucks up that company for some quick profit, and you're screwed.
On top of that: vendor lock-in. Switching to a different platform can be hard and expensive, no matter how much you want to.
Of course most smart companies with long-term vision listen to their customers, but plenty of companies don't. Many great companies have been ruined for short-term profit for either their executives or their investors.
And the same is true for employees: a lot of people can't afford to leave their job. They've got mouths to feed. And besides, in their next job, they might be just as powerless.
Ultimately, the skewed division of power is not always good for companies, and it enables the people holding that power to enrich themselves at the cost of other stakeholders.
I totally agree that market solutions aren't perfect. I alluded to some legal fixes in place, but there are of course many others, some of which address concerns you raised -- fitness for purpose, abuse of market power, varying levels of employee protection and representation depending on jurisdiction.
These things are clearly patches, though. The logic of the system is that companies operate on the behalf of their owners, with some sharp edges filed off to handle perverse incentives. I guess this organisation wasn't chosen for its competitive advantage (probably rather just a legal&historical accident) but it seems to be doing better than anything else we've tried -- worker co-ops, non-profits etc.
Someone once told me that "exit is more powerful than voice".
Apologies if you were intentionally avoiding the explicit reference, but for others who are interested in this concept, it comes from Albert Hirschman's 1970 work "Exit, Voice, and Loyalty": https://en.wikipedia.org/wiki/Exit,_Voice,_and_Loyalty
Hah, thanks. I knew the idea wasn't original to the person who told it to me, but was too lazy to look up the original source. Maybe I should get around to reading it...
Sounds like you would enjoy reading some of Benioff’s stuff. You’ve basically summed up his entire philosophy and the way he tries to run Salesforce, although he would include the community that the company operates in as another key stakeholder.
I don't see them as two ways but rather the same way at different times. Founders of Apple lost majority many decades ago. If Steve Jobs was alive and had a majority in Apple's stocks would have behaved like Google's founders Larry Page and Sergey Brin.
The analyses in the comments and in the article all assume shareholders are one large, homogeneous group with identical or very similar goals regarding investment strategies. This is far from the truth, and realizing there are differing investors with different risk and time adjusted financial goals changes this debate drastically, and (imho) makes it largely irrelevant.
> Proponents of the managerial model embodied by Google worry about a different principal-agent problem. Rather than being concerned about managers ignoring investors, they are concerned that investors won’t serve the people who would benefit from the long-term success of the company. Those professional investors are both the principals for the CEOs but also the agents of many other shareholders. The hedge funds that pressured Apple are the dreaded “short-term” investors who are interested only in quick wins and don’t serve their longer-term beneficiaries, such as pension funds, that allocate capital to them in the first place. As investors, hedge funds are impatient, and, the argument goes, ruining the economy by shortening time horizons.
How to spend profits was interesting, was surprised they didn't talk about Apple's Anti-Consumer and Anti-Developer model that forces one time users into their ecosystem.
Well in one sense "managers capitalism" isn't capitalism at all. It's the principal-agent problem in the extreme. The basic point of capitalism is to distribute power and decision making as much as possible. That's called a market. Those who argue that Google has the better strategy don't really understand the ethics of business and its role in society. Sure, if you're trying to "win the game" be more like Google. If you're trying to make capitalism proud, be Apple. Probably a socialist anyway!
> Even as corporations have brought in enormous profits, there has been a shortage of lucrative opportunities for investment and growth, creating surpluses of cash. This imbalance has resulted in the pileup of $2 trillion on corporate balance sheets. As companies continue to generate more profits than they need to fund their own growth, the question becomes: Who will decide what to do with all those profits—managers or investors?
> there has been a shortage of lucrative opportunities for investment and growth
History has proven this to be false. There is only a shortage of creativity. There was a Micorsoft talk Ballmer gave where he rightly pointed out that it is rare for even successful companies to have more than one cash cow idea. Using their existing cash to create two or more is the main challenge facing companies like Microsoft, Google and Apple.
An interesting article. One thing I like is that there's no "trickle-down" economics BS here, for decades it has been preached that tax cuts will increase the profits which will be reinvested for the benefit of larger social groups. When in fact we've seen an increase in corruption and social inequality. Here we have two models that are being compared not by who makes more, but who is more competent to actually reinvest and sustain long-term goals. As utopistic as it may sound, I would add the workers into the circle, an educated workforce is the only solid unit that can remain active in a recession caused by bad managers or greedy investors.
Business. Business is the word they were looking for.
Apple and Google don't engage in capitalism, they engage in business. Capitalism is a socio economical political system that they are actors in and have no say over(besides attempts to lobby which are real but not the focus here).
This may sound like semantics but I think this subtle and intentional shift in language is dangerous. You constantly slip the strawman into everyday language until the average person has heard it enough times to have a deeply negative view of capitalism because they equate capitalism to companies they don't like(we are already past this point)
These days, being deeply anti capitalist is a main stream viewpoint but if you ask people what they mean by it, many of them aren't usually looking for economic system reform, they are looking for Companies that they feel are doing business unethically to be constrained or policed. They end up fighting the wrong thing based on a faulty definition which is highly unlikely to produce the results they want.
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[ 4.7 ms ] story [ 169 ms ] threadI wonder what the future will hold? Culture seems like the strongest indicator for whether changes can be made. Without the sort of long term vision Jobs had to guide the company from the top down, successful pivoting depends on if internal company culture can support a bottom up revitalization I think.
As to your comment on innovation, Apple has largely squandered it's source of foundational income cornering itself into a niche, such that though it may be extremely innovative in it's area (Apple has some amazing processor design for example), is fundamentally constrained by the limited pieces it has to work with.
Basically, instead of undergoing a necessary evolution like we've seen from the progression of Google -> Alphabet, Apple has failed to scale itself in a way where it can keep up. This by no means is meant as a sleight to any Apple employees though, as I know from first hand experience that some of the best and brightest people are working there. It's just a matter of how scaling works. Horizontal scaling allows for unlimited growth, whereas vertical scaling quickly reaches an asymptotic ceiling.
Google for most of the last decade has had it 'easy' though. The natural expansion of its ad revenue has reduced the need for it to turn some 'evilness' dials to keep revenue and profit growing. With Apple its very straight forward, they sell things, and if you want their services you pay for them.
How much has that goodwill improved profitability? What were people going to do, revolt and use Bing?
Alphabet's approach to innovation is to throw spaghetti at the wall and see what sticks. I’m not disparaging that approach, it’s probably what I would do if I had all the money in the world. But I’m not convinced that any of these “moonshots” are amounting to much yet.
Apple has been described by many as the world’s largest startup. They’re very careful with their focus and resources, even to the point of killing off successful products (not just iPods, but things like their routers and printers). They _could_ just spend money and grow, but they know that would lead Apple to not being Apple anymore.
So what is Apple? A strangely conservative company with a clear vision of the future that they approach slowly and methodically.
Apple brought us the “touch future” and the truly “personal computer” (the one you take everywhere in your pocket). We still haven’t fully realized this potential and Apple is still building on it. Look me up in ten years and let me know if they’ve hit that vertical ceiling.
Probably Maps and Android are the two products they do that I would consider 'quality'.
I'm not happy with Tensorflow, Golang, or Kubernetes.
What's your issue with Golang though?
It feels like a lot of the things that happen like if err != nil are code smell. I wrote a cli in go and wouldn't mind it again but I program in elixir now and the emphasis on developer joy is refreshing (but it makes wise choices, e.g limiting the scope of macros to lexical)
In a very real sense, Alphabet has an r selected corporate strategy, while Apple is K selected[0]
[0]: https://en.wikipedia.org/wiki/R/K_selection_theory
I pay for Google Music and YouTube for $16 for 5 family members and me. I haven't seen a YouTube ad for years. Best use of my money every month.
The difference between these two companies is that one publicizes the stuff it's working on and rushes it to market, while the other keeps it all secret until it's ready.
Also, Apple is working on AR glasses(rumored to be announced next year), self-driving car and are making a big push into digital health.
Apple is far from doomed, they still have a lot of room for growth.
I do agree though that Apple is more diversified than a company that keeps selling super-expensive beta tests that get killed after the first or second try doesn't work.
Waymo is the defacto number one leader in self-driving, whereas Apple’s self driving unit is having huge issues internally. Similarly, didn’t Verily just receive a $1 billion dollar investment a few days ago with Silver Lake as the primary backer for it’s various life science hardware/digital technologies it’s working on like LiftWare [1], Project Baseline [2], etc?
[1] Liftware - https://youtu.be/cFHwoOkSj7w
[2] Baseline Study - https://projectbaseline.com
Apple has more diversified revenue than Alphabet. Why would you say Alphabet is more successful?. All this tells me is that Apple thinks long and hard before publicizing what it's working on, they won't show us prototypes.
> Waymo is the defacto number one leader in self-driving, whereas Apple’s self driving unit is having huge issues internally with getting anything done.
ALL of Apple's reported problems had to do with the MAKING of a car, not autonomous systems. People just don't get this distinction. We will know how far their system is at the end of this month when the DMV releases their disengagement report. By the way, recent developments indicate that Apple is back to building an electric self-driving car instead of a self-driving platform.
What about,
Loon - https://loon.co/
Dandelion - https://dandelionenergy.com/
Wing - https://x.company/wing/
Chronicle - https://chronicle.security/
Malta - https://blog.x.company/introducing-malta-81bceb559061
Apple is almost 100% definitively not working on a molten salt energy storage solution I can promise you. And the reason is because it’s just not in it’s corporate structure or culture. Far too constrained / trapped in it’s niche to expand outwards into such a vastly different market.
Based on what?
Also, that 86% is basically from Google Search ads and YouTube. YouTube's quarterly revenue is estimated to be just under $4 billion. That puts Google Search ads at around 72%, which is still higher than the iPhone's 59%.
The notion that Alphabet's "other" projects succeeded while Apple's languished is completely baseless.
Google's last quarterly report says 24bn in revenue from Google properties, and ~5bn from non-google properties. If we add in that YT is a separate property too, we get ~60% from Google, ~12% from youtube, ~15% from network, ~14% from hardware/android/cloud.
(I work at Google, but I am using public figures from the Q3 investor relations document and your analyst number for YT revenue).
A “successful” product for a profit making company is one that makes money.....
Google hasn’t shown an ability to ptofitably sell anything but ads.
According to numbers that came out during the Oracle lawsuit, even Android has only made Google $31 Billion since its inception.
The $31B revenue would be huge for almost any company. The magnitude of Google's largest cash cow, a glowing golden cow towering over the farm house, makes their normal-sized livestock look small. Because everything is so insignificant compared to advertisements, Google has killed projects that could be the entire product of a sustainable smaller company.
https://sixcolors.com/post/2018/11/reminder-apple-financial-...
And that’s $31 billion in revenue not profit.
The profit over 8 years is only $21 billion.
https://www.theverge.com/2016/1/21/10810834/android-generate...
Does nobody proof read these things before they get published?
Perhaps this portion is what confuses you: stores electricity as heat in "the form of a combination of a" high temperature molten salt and cold in a low temperature liquid. This would be an explicit wording which might help to clarify things, but is not used due to redundancy.
Some links: https://techcrunch.com/2018/02/17/a-peek-inside-alphabets-in... http://www.gv.com/portfolio/ https://capitalg.com/companies/
This is the correct approach, yet a lot of people still haven’t internalized this subtle distinction.
For a self-driving platform to deliver on the promise of being more reliable than a human driver, it has to constantly monitor two environments: its internal environment and its external environment, but most discussions dwell on the external.
External environment failure in the worst case scenario can lead to loss of life. OTOH, internal environment failure can lead to internal inconsistency and in the worst case, a machine shutdown; but because cars share the road with other road users, a sudden failure in one car can lead to multiple car accidents and in a worst case scenario, several lives lost. In a way, the failure outcomes are identical.
An electric car is far less complex than an ICE car meaning there are fewer moving parts and subsystems whose state needs to be kept track of constantly. This is where electric drivetrains hold a lot of promise: a low complexity machine can be made more reliable at a lower cost than a high complexity machine.
Oh wait, no I didn't. Because of those 3, Apple is the least diversified company, and it's major revenue source is driven by a single line of products (the iPhone) which drives nearly every one of its other major revenue sources (i.e., the App Store). The double-whammy effect is part of why investors are so concerned: users not buying new iPhones means that users are also buying fewer apps in the App Store.
It's really a CFO's problem, financial engineering.
Companies that sit on massive cash all have this problem.
The difference is not one of culture, it's the fact that Google is still controlled by powerful founders who can act in different way, i.e. 'maintain hard power' through share voting 10x's ... or even via 'soft power' just by being founders.
Apple has more of a regular CEO.
There are a variety of interesting things about this, but it's mostly on the financial side, and won't make a spec of difference in the rest of the company.
Neither Apple nor G will be operationally hindered, M&A and other activities will be just the same.
As founders move away from Alphabet, I bet they take a few fewer moonshots though ...
> It's really a CFO's problem, financial engineering.
I'm not sure how you distinguish this from capitalism.
It's not really a fundamental issue of control, it's just one of the many issues that pops up in the day to day of organizations that are cash flush relative to their income.
I wonder if he has any updated thoughts on this subject matter. Does anyone know of any more recent links to articles or writings he’s made?
Here's his list of publications: http://www.mihirdesai.org/publications-and-media/
And I don't think his argument was "Apple is infallible", but "Apple's model will prevail (or is good) for the future of capitalism". Not that Apple or any company following the model is guaranteed to always have increased stock value forever.
There are very, very few counter-examples in narrow low-growth specialised markets, but the general rule has been shown to occur countless times across economies as small as communes to as big as a superpower.
The reason capitalism works is that capital generally flows to people with a track record of making efficient, effective, growth (and therefore jobs) generating investments. Which is what you want. There is some wastage of course, but far less than in planned economies (at least all of them so far) and capitalism tends to be very efficient at recycling that wasted capital back into productive enterprises.
"Amongst other things, these work councils were now free to decide on the distribution of income between wages and investment. In one sense, this policy change was a success: income per worker increased and wages became a bigger share of the economic pie. However, labour-managed firms seem to have reaped such rewards by hurting other members of the labour force, restricting the employment of new workers so as to limit the worker-based labour market competition that could scupper the wage demands of the 'insiders'."
https://capx.co/do-workers-need-capitalists-new-lessons-from...
AFAIK, there is no evidence that labor coops fail at a greater rate than conventionally structured businesses. If you have such evidence, I’d love to see it.
Capitalism fundamentally doesn't distinguish between "growth" from zero-sum rent-seeking, which simply benefits one class by impoverishing another, and growth from innovation and invention, which - at best - creates entirely new markets.
Too many shareholders consider blue sky R&D with no specific return schedule an outrageously risky gamble and a misuse of money that should have been paid to them.
I'm still waiting to see any on point.
> Read any decent economic history of the Soviet Union, or Maoist China.
Which would be relevant if I was asking for evidence that Leninist vanguardism and it's derivatives were adequate systems to overcome the disadvantages poorly developed economies engaging in large scale geopolitical conflicts with advanced industrial powers face. Or if I was asking about evidence about the utility of top-down state central planning.
But labor cooperatives don't require a state featuring Leninist vanguardism or top-down central planning, and in fact are a well-known practice in modern Western mixed economies like those in North America and Western Europe, and there are a lot of well-established observed differences between labor coops and classical capital-rents-labor firms within such systems, but I can't see any evidence that a higher failure rate for coops is one of them.
Put it the way. What are the conditions in western democracies that are hostile to the success of workers cooperatives? We enjoy pretty egalitarian, fair legal and regulatory environments that aren't obviously hostile to them. Even if they were, many European countries have frequently had explicitly socialist governments and have had plenty of time to establish legal frameworks compatible with voluntary collectivism. Why hasn’t it worked?
[0] https://capx.co/do-workers-need-capitalists-new-lessons-from...
Regular boom-and-bust that keep people poorer and lessen social spending. It's very good at allowing the 1% exploit us and feed you lies.
> There are very, very few counter-examples in narrow low-growth specialised markets, but the general rule has been shown to occur countless times across economies as small as communes to as big as a superpower.
Yet we have Mondragon Cooperatives in Spain.
> but far less than in planned economies (at least all of them so far)
What I am specifically talking about is Worker-owned-and-directed-enterprises [1]. Planned economies is just state capitalism (but even that, you see China? the fastest growth in the history of mankind?).
> and capitalism tends to be very efficient at recycling that wasted capital back into productive enterprises.
Are you serious? Very efficient?
[1] https://www.youtube.com/watch?v=qT1JAzhywfA
Historical nonsense. Fascism is a direct descendent of Marxist socialism with class consciousness replaced by nationalism.
And the Soviet Union and Communist China were state socialist societies. Neither of which were known for their humanity and environmental consciousness.
You can't just define capitalism as "all the bad stuff". Well you can but it's disingenuous and wrong.
Pure capitalism has never existed and wouldn't work anyway. Same goes for pure socialism.
Organisations like Mondragon and John Lewis have shown that models that mix the two can be successful. That message is not helped by a wilful disregard of facts.
Pure Nonsense. Fascism is simply extreme nationalism. It is believing that one's race is superior which makes you hate immigrants. Makes you build up walls to keep them out. This is born out of the constant exploitation of the capitalists.
When the people stop believing the Capitalist lies, you start getting demagogues like Trump.
This has nothing to do with Marx and Socialism.
Just to repeat, Soviet Union and Communist China Vangaurdism has nothing to do with Worker-owned-and-directed enterprises.
Soviet Union and Communist China is very different from Mondragon and John Lewis. Power is decentralized as much as possible. Managers and Executives (if needed) are only in power for a few months and is subject to call any time. Unlike today where C-level persons act like Feudal Lords.
There were pathologies but not necessarily what you might expect. Notably, employees objected to expanding the employee pool. This led to a system where old employees were shareholders and new ones were not. This eventually led to the collapse of the system, as much for ideological (classism) reasons as practical ones.
The dynamics are poorly understood, imo. One possibility is that this type of company will tend to maximize earnings-per employee. Without the ideological baggage, I wonder if a dual classes if employees isactually a good idea.
As this article demonstrates, the lines between ownership, governance on paper & governance in practice are not straight.
^"labor" was, att, the dominant institution of the country with the ruling party, largest medical network, etc. It was a new country, post holocaust solidarity, war, socialism... exceptional circumstances and not a perfect example, certainly.
Pay your employees.
> Unions who represent Amazon workers have characterized its work conditions as “draconian” and physically demanding to the point of causing injury. Francisco Hervias, a worker who protested on Black Friday in Madrid last month, said at the time that he nearly lost his hand on the job.
https://gizmodo.com/amazon-workers-in-spain-and-germany-anno...
A reduction in supply of labor will lead to higher wages, at the same time providing people with less stress and more time to participate in their community.
https://www.theguardian.com/technology/2019/jan/03/google-ta...
Meanwhile ca. 850m people (1 in 8 of the world's population) are starving globally.
How can you argue aginst this when Google workers are collectively amongst the best remunerated in the world, Google is notorious for massive-scale tax avoidance and hundreds of millions of men, women and children around the globe are dying because they lack basic resources for life: Food, water and healthcare.
Each to his or her own I guess.
The main comparison point and conclusion is interestingly straightforward: Google gets to keep their pile o' cash because founders still control voting rights. The economic analysis is traditional (principal-agent issues) but I think it undersells the differences from theory.
Eg, investors are still happily buying "founder controlled" shares like Google and Tesla even though the principal-agent problem is huge on paper. Reminds me of musk said: spaceX can't have public investors because going to mars doesn't give you the best risk adjusted returns. Investors will want to launch satellites for cash, not risk everything to go to mars where there are no customers.
The hitch is that these investors will still buy the shares even if the mission is "mars." They'll campaign for a more lucrative mission and eventually win.
Perhaps these "founder control" arrangements are a way of creating kinds of "investment doctrines." Either way, their existence (beyond founders that simply own lots of shares) suggests that public shares create governance problems that aren't explainable via principal-agent or some other traditional economic explanation.
I'm not sure I'd phrase it this way. Suppose option A earns you 5% and option B earns you 6%. But you, as a founder, really prefer option A to option B. Then you better not take your company public, because your personal preference doesn't match the market preference.
In your example, going to Mars earns less money than selling the satellites, and Musk really wants to go to Mars. I don't see this as a governance problem -- Musk's pleasure in going to Mars plus the returns from doing that exceed the public's pleasure from the returns only. So since this is a bit of a vanity project, it can't be publicly controlled and remain a Musk vanity project. That's not a governance problem, it's how governance is supposed to work.
But then you say that investors are happily buying these shares? Well, it's an expected income stream, so the shares are being priced. Happiness has nothing to do with it. A 5% return is still worth something, even if the share price would go up should the strategy change. In no model would the price of the suboptimal income stream be zero.
The real question here is what happens to the visionary iconoclast who knows that going to Mars will result in a higher return. For them, it's not a vanity project but some kind of private belief that is more accurate than the market belief. In that case, non-voting shares will outperform in the long run. We can say that Steve Jobs was such a visionary and maybe Musk is, too. But how much do you want to bet on that? And is that really an argument for one type of structure over another? That your average company is run by some visionary genius that is smarter than the market? Is that a governance problem? No, not at all.
Ultimately, the big difference between whiteboard and reality in the "A or B" scenarios is that the rates of return are not known. You can represent the scenario such that an investor has some working risk-weighted estimate but... Idk. I think a rocket company just doesn't lend to that type analysis, in practice.
The long term comes down to belief in one way or another.
Personally, I suspect that the reason for these arrangements in the face of traditional economic rationale is kinda meta.
We already have a lot of large companies under traditional, often institutional shareholder control. This tends to yield a uniformity and leaves certain opportunities on the table, whichever strategies get reliably vetoed by a generic, institutional shareholder elected board.
I don't think we're very far apart. I just think that statement leaves some room that is (possibly) being filled by these "founder controlled" agreements. For one thing, they can convince investors. They do. Elon et al are great at getting people to invest. There's just no "enterprise grade" way of actually making that deal with the public.
In any case, why can you sell shares that don't vote but not shares where you still go to mars, never pay dividends or whatever. If investors buy them, who loses?
I wonder what would happen to Google's share price if founder control was suddenly ceded. Theoretically, it should go up, no? But, I suspect it mightn't. Market rationality is a relative term.
In practice however, there are good reasons why the exchanges and others want to discourage these types of corporate structures. It is difficult to price the risk of a CEO going off the reservation, so to speak, and investors will be unable to pressure the CEO or replace the board in case the CEO ends up not being a good steward of investor funds. There are always principle agent problems, and having the CEO on a longer leash means that pricing the stock becomes a lot harder, and you will end up with a lot of mispriced assets, certainly ex-post and probably ex-ante. This is true even if the average of all such assets is properly priced. That is a welfare destroying thing. E.g if the universe contains two stocks that should each be priced at $1, and one is priced at $2 and the other at 50 cents, then this is welfare destroying. So anything that adds opacity to long run returns is bad for the market -- you can't just say that investors will properly discount the opacity. This is why we have disclosure regulations rather than letting firms not disclose financial information and letting the market price that.
IMP it would be much better for Musk or someone else to create a charity with the goal of going to Mars and endow it with ownership of stock of for profit firms like SpaceX. This is cleaner than having a for profit firm adopt a pseudo charitable role.
You also have to think of what will happen to these super voting shares after the CEO/founders are gone. Will their kids share the same vision and foresight? Having these types of structures creates a lot of practical problems even though in a simple theoretical model there is nothing wrong with doing it.
How about a share/bond where you get your money back with interest if spacex plants a lichen on mars by 2029. The only problem is this disincentivizes spaceX from actually doing it so we need speculators (elon's nemesis, the short trader) to flip the bet so you're aligned (long) on SpaceX's success.
I'd buy some.
In the end though, if the founders of SNAP wanted to sell SNAP, they'd sell their voting shares. If they wanted to pay dividends, they'd pay dividends to only the voting class. Why would they ever need to bother with including common, what could the common shareholder do, ask a question at the shareholder's meeting?
Q: "In the buyout offer from Facebook, Facebook is buying the Preferred Series of shares only, leaving SNAP as a subsidiary of Facebook. Facebook is planning on a tight integration, one that will essentially turn the SNAP app to a rebranded Instagram. What does the common share holder get out of this deal?"
A: "Well, the SNAP common shares still exist, they remain non-voting, non-dividend shares in the subsidiary. Next question."
Q: "So, the founders get paid, but common doesn't get anything? As a common shareholder, I object and I don't agree to this buyout"
A: "To answer your question, if you look at your shareholder agreement, as an owner of SNAP common, you get the right to ask a question. You will still retain that right to ask questions. As for your second statement, please ensure your spoken comments take the form of questions please."
I think this goes for all founder controlled companies, but even more so when the class structure is used to move voting rights to just the founding shareholders.
But companies have not just two, but at least 4 groups of stakeholders. Investors and management, but also employees, who also depend on the long-term health of the company, and customers, who want the company to be a reliable partner that's healthy enough to continue to support their products.
I'd like to see a control structure that balances all these stakeholders, rather than choosing one that has all the power.
All power in one place is certainly easier, but also more open to abuse, whether it's hedge funds looting the company, or Enron-style upper management looting the company. A company is not doing a good job unless all 4 groups of stakeholders are happy. (I suppose you could consider society a 5th stakeholder that doesn't want the company to pollute or create other harmful side effects.)
Capitalism traditionally gives power to customers through their ability to choose not to buy the company's products. Works better for Apple than for Google, though we pass laws to mitigate some externalities (privacy).
Workers get a say in a similar way. If a company isn't worth working for, they won't work there. This is truer for companies like Google and Apple than most (even though they are enormous) because the labour market is so tight. Again, though, we pass laws like allowing labour unions (which are a price-fixing mechanism) to address imbalances of power.
Funnily enough, this is kind of on-topic for the article. Ownership in a company usually gives you "voice" and "exit", and these fancy share classes effectively take away voice and just leave the average shareholder with exit -- "If you don't like how we run the company, invest in someone else."
I think the reasonableness of it is a question of effectiveness rather than morality or logic, to be honest, but I do like the idea that Zuckerberg's board proposed to him when considering an additional share class+split that would have entrenched his power: "Your shares will become regular stock when you stop personally being CEO." They wanted him to run the company how he wanted to run it, but didn't want him to hand-pick a successor.
Still, a bit perverse that negotiation. Technically Zuck had the votes, so I guess (?) the legal mechanism of that action was "We won't sue you for not representing our interests if we do it this way." (Voting stock or no, shareholders always have some legal voice.)
You may buy a product from a great company with excellent support, and then a hedge fund comes along and fucks up that company for some quick profit, and you're screwed.
On top of that: vendor lock-in. Switching to a different platform can be hard and expensive, no matter how much you want to.
Of course most smart companies with long-term vision listen to their customers, but plenty of companies don't. Many great companies have been ruined for short-term profit for either their executives or their investors.
And the same is true for employees: a lot of people can't afford to leave their job. They've got mouths to feed. And besides, in their next job, they might be just as powerless.
Ultimately, the skewed division of power is not always good for companies, and it enables the people holding that power to enrich themselves at the cost of other stakeholders.
These things are clearly patches, though. The logic of the system is that companies operate on the behalf of their owners, with some sharp edges filed off to handle perverse incentives. I guess this organisation wasn't chosen for its competitive advantage (probably rather just a legal&historical accident) but it seems to be doing better than anything else we've tried -- worker co-ops, non-profits etc.
Apologies if you were intentionally avoiding the explicit reference, but for others who are interested in this concept, it comes from Albert Hirschman's 1970 work "Exit, Voice, and Loyalty": https://en.wikipedia.org/wiki/Exit,_Voice,_and_Loyalty
This profile provides an overview of some of his more recent moves: https://www.cnbc.com/2018/12/30/salesforce-marc-benioff-talk...
> Proponents of the managerial model embodied by Google worry about a different principal-agent problem. Rather than being concerned about managers ignoring investors, they are concerned that investors won’t serve the people who would benefit from the long-term success of the company. Those professional investors are both the principals for the CEOs but also the agents of many other shareholders. The hedge funds that pressured Apple are the dreaded “short-term” investors who are interested only in quick wins and don’t serve their longer-term beneficiaries, such as pension funds, that allocate capital to them in the first place. As investors, hedge funds are impatient, and, the argument goes, ruining the economy by shortening time horizons.
* Facebook
* Twitter
* Google
* Youtube
* TUMBLR
* Pateron
* Stripe
* Paypal
* Twitch
* Spotify
* Apple
* pin interest
* LinkedIn
* Mailchimp
* Wordpress
* mastodon
* azure
* Mastercard
* Godaddy
* MEDIUM
* Shopify
* Cloudflare
* pusher
* WIKI
* Reddit
* teespring
* Slack
* coinbase
* GOFUNDME
* VISA
* Minds + mewe (FB alt)
* Gabai (Twitter alt)
* Bitchute (Youtube alt)
* Tutanota + Protonmail(email alt)
* Wire (skype alt)
* Librepay (Donation alt)(Warning they use STRIPE+Paypal) * subscribestar (Donation alt)(Warning they use STRIPE+Paypal)
* Startengine (Kickstarter alt)
* peertube (DIY self host youtube stream style server)
* stream.me (steaming alt)
* Voat (Reddit alt)
* Movim (Tumblr alt)
* Pixelfed (Instagram alt)(one admin is an leftist)
* @GetTogether (meetup.com alt)
Also look into:-
* searX.me or Duckduckgo (search alt)
* OpenStreetmap - instead of Google maps
* imgtc or tineye - free image upload site
* Linux - Win/MacOSX replacement
* f-droid.org - Google Play Store ALT
* Mumble - Discord ALT
* Gitlab (Github alt)
* spreadshirt - shirt merch alt
Regards Charliebrownau
Wanted to see how google was doing similar.
It is also half the age of Apple. So sounds like one is beating the other in terms of capitalism.
And will they decide to pay their employees?
History has proven this to be false. There is only a shortage of creativity. There was a Micorsoft talk Ballmer gave where he rightly pointed out that it is rare for even successful companies to have more than one cash cow idea. Using their existing cash to create two or more is the main challenge facing companies like Microsoft, Google and Apple.
Apple and Google don't engage in capitalism, they engage in business. Capitalism is a socio economical political system that they are actors in and have no say over(besides attempts to lobby which are real but not the focus here).
This may sound like semantics but I think this subtle and intentional shift in language is dangerous. You constantly slip the strawman into everyday language until the average person has heard it enough times to have a deeply negative view of capitalism because they equate capitalism to companies they don't like(we are already past this point)
These days, being deeply anti capitalist is a main stream viewpoint but if you ask people what they mean by it, many of them aren't usually looking for economic system reform, they are looking for Companies that they feel are doing business unethically to be constrained or policed. They end up fighting the wrong thing based on a faulty definition which is highly unlikely to produce the results they want.