Too Big NOT to Fail?
WHY YOU SHOULD CARE
Because the mightiest companies usually fall … eventually.
By Daniel Malloy
Take a look at America’s most valuable companies from 100 years ago, and you’ll hardly recognize most of them. Meatpacker Armour & Co. ceased operations in 1983. Agricultural machinery-maker International Harvester broke up in 1985. Go back 50 years, and the list looks more familiar: IBM has fallen from the perch it once held in the late 1960s but remains a powerhouse. Sears & Roebuck is in bankruptcy, and Eastman Kodak is no longer touting Kodak moments.
And now? Most of the 10 most valuable public companies in the world today didn’t exist in 1969 — Amazon, Apple, Microsoft, Google parent Alphabet, Facebook, Tencent and Alibaba all have more recent birthdays.
So what does this mean for the stock market of 2069? It’s a version of the old law school adage: Look to your left, look to your right. At least one of you won’t be here.
The OZY original series Too Big Not to Fail dives into the challenges ahead for America’s corporate giants, and what they can learn from the past.
Today’s headlines tell of stunning valuations — Apple, Amazon and Microsoft have all crossed the $1 trillion threshold before falling back amid a rocky stock market — but also looming threats. The political drumbeat against Facebook grows by the day in Washington and Brussels. Slumping iPhone sales for Apple hint at a deeper problem that often infects the titans of the day.
These behemoths are also confronting a world where the very nature of business is changing.
“Lots of businesses fail over time because what they miss is the future,” says Michael Moe, founder of GSV venture fund and author of Finding the Next Starbucks (disclosure: Moe is an OZY investor). “They miss it not because they can’t see the future evolving in front of them. They miss it because they can’t transform their business. It’s the innovator’s dilemma of taking the risk and really changing the organization, doing things that are uncomfortable.”
Tech dominates the top of the economy today, and while creative disruption is the name of the Silicon Valley game, some of the biggest threats come from Washington. AT&T was once near the top of the heap until the government broke it up. Several Democratic presidential candidates and leading legislators have suggested doing the same to Facebook, and tougher federal regulation on social media has turned from a question of “if” to “when” and “how.”
Government scrutiny is not a death knell: In a landmark anti-trust case, the Department of Justice busted up Microsoft’s monopoly over the browser business. It was overtaken by other tech giants but has since roared back with its robust cloud computing business, and is now the world’s most valuable publicly traded company.
But these behemoths are also confronting a world where the very nature of business is changing. More and more aspiring leaders are shying away from shareholder gospel: that a company’s leadership is duty bound to deliver returns on investment, first and foremost. Younger entrepreneurs, Moe says, talk more about sustainability and impact on a wider scale. “It’s not just the shareholder: It’s the employee, it’s the community, it’s the customer,” he says. “It’s a broader group, and you have to be listening and delivering for all those groups or, I think, you become less relevant.”
Read on for more of OZY’s deep dive into whether today’s biggest companies are Too Big Not to Fail.
For many years, tech giants such as Facebook and Google have tracked user data — from browsing history to email addresses — and deployed that to offer companies targeted advertisements. In 2017, Facebook earned $20.21 per user this way, according to filings with the Securities and Exchange Commission — its 1.94 billion monthly active users at the time would have brought in $39 billion in revenue. But none of that money was shared with users, and the company has gotten into hot water for violations of data privacy. Now, a host of startups such as Killi, Brave and Wibson are threatening to challenge that model, with an alternative approach that gives consumers the option to both control their own data and profit from it, in a direct threat to the business models of the giants.
For years, supporters of quarterly Wall Street “guidance” from public companies have argued that predictions can help prepare investors for changes in market conditions or company plans that might affect stock prices. But an increasing number of companies are turning away from quarterly projections amid growing concerns that a short-term fixation can blind them from pursuing more long-term objectives — a potential weak point for America’s giants as they seek to remain on top of the corporate heap in the coming decades.
IBM was a slow-moving corporate behemoth, one that waited too long to enter the personal computer business in the late 1970s. It was a delay that provided a fateful opening for Microsoft’s Bill Gates and Paul Allen to pull off a contractual coup in 1980 that would change the course of tech history … and help oust IBM as the world’s dominant computer company.
Kodak insiders saw digital as a real threat to their core business, but top leadership didn’t take it seriously enough. By 1996, though, they had come around to the benefits of the technology, so the company spent $500 million to develop the Advantix. The key innovation? Being able to see the image instantly and then decide how many prints you wanted. But you still had to get physical prints — using Kodak’s moneymaking print and ink business. The Advantix eventually flopped. Once one of the biggest companies in the U.S., Kodak filed for bankruptcy in 2012.
Climate change is the ultimate business vulnerability. It’s time for one of the world’s biggest emitters to get serious about it. The carbon consensus is that waiting longer for deliveries provides a huge benefit to the planet — trucks run on more efficient routes, and goods move long distances by truck rather than plane. One order a month, versus five, would also save on the environmental costs of packaging. So Amazon, which has ramped up efforts recently to provide one-day shipping to Prime members, should actually reverse course … to limit customers to one order per month.