I think financialization is something you do in the later stages of a company's lifecycle. It is how you extract the most value out of the company as money, rather than potential.
I think companies have pretty clear life cycles. First they start, they grow, then the plateau, and then fall. Sometimes you may get a few bumps in the road, but generally this is the long-term cycle.
Financialization makes the most sense to engage when when you are plateaued and possibly falling. You can still extract value.
I think that the fall of Sears was a great example of the financialization and extraction of value of a dying company.
Financialization is trading off future potential growth or even long-term staying power for $$$.
Doesn't this feel like a self-fulfilling prophecy? It's like saying "if things are going bad, then just try and extract value."
But if extracting value makes things go bad, then it pretty much leads to a death spiral.
I feel like a more helpful framework is: if you're giving up on competing, then financialize, while recognizing that a) it's probably gonna kill your company, and b) value extraction from users [especially those who have little choice in using your products!] is no fun for anyone!
Death spiral? Their stock looks OK. My Core i9 still goes so fast. But for the past few years, if you only read Internet comments, you'd think Intel is about to go belly up tomorrow. This same thing happened twenty years ago. For example:
> NYTimes - Nov 29, 2004 — The Disco Ball of Failed Hopes - Intel, giant computer chip maker, seems to have lost its way lately; has publicly ... including the 25 percent decline in Intel's stock price this year
As far as I can tell, things are pretty good for the Intel/AMD duopoly. AMD's stock is up 1000% in the last five years. Right now AMD is on top. Just like how AMD was on top around 2004. Then after a few years of AMD winning, Intel turned it around and became on top again. It's like democrats and republicans.
> As far as I can tell, things are pretty good for the Intel/AMD duopoly.
This is no longer a duopoly. We have Apple Silicon and Windows on ARM has gotten new life. AMD and Intel don't have the x86 monopoly on the desktop and laptop market anymore.
I'm probably not the only person that switched to a MacBook in the last two years because their products are leagues above what AMD and Intel offer. This is the first Laptop I've had that's quiet, has 10+ hours battery life and doesn't lag.
Every Windows laptop I bought or tried in the last few years was a disappointment. They cost $ 2000 or more and feel slower than my old i7-3770k at home. They say they have improved battery life but in reality it's still only 4-6 hours if you are lucky (if you want M1 performance 2 hours...).
I agree this won't be the end of Intel or AMD and I think we have seen some progress in the last few years and I will be trying out the new AMD laptops in summer. But there is definitely a lot more competition today than in the last 20 - 30 years.
Sometimes there's not much you can do. It can be the case that, you know business as you know it will end and that no level of investment into a replacement will yield a competitive product (i.e., tube tvs to LED/Plasma, movie rental places, etc).
Even innovation powerhouses can eventually fall. Those that stick around often shed the business units that made them successful initially (GE). One good way to extend the life of a company is to acquire your eventual replacements before they get a shot at you.
Business is hard, and most profitable businesses have a shelf life.
I think it's not that clear. Where I work (hp) you could argue we're like Intel: large public company, shareholder oriented, buybacks, etc. However, we've also gone through a series of consolidations, split-ups, spin-offs and so on. At this point our own company and all our cousins and step-children all have bits and pieces of a whole bunch of different companies.
Also, I'm not sure why a blue-chip company can't just keep on existing. We pay a lot of dividends to keep our investors happy, which means less is available for R&D. That doesn't mean there's no R&D, though, the challenge for a CEO managing a company like this is to balance the two competing demands. Competitors that aren't focussed on crowd-sourced shareholder demands can make disastrous decisions more easily.
Blue chip companies need to get better at spinning off internal units into startups.
Every blue chip that I've worked at had internal products that someone eventually founds a startup to copy. Sometimes, it's even an internal employee that leaves to start the new business.
Financialization can be good for consumers in the right context. Being a cutting edge processor company is not one of them, though.
But there are plenty of products that become "perfected" over time, and investing into R&D can just be wasteful and raise the breakeven price of the product, thus raising cost to consumers.
It's true that a company could strive to become a conglomerate and in theory get higher returns on new R&D, but it's been proven that conglomerates often lose focus and are harder to carry into perpetuity. Generally conglomerates that spin off focused companies create more overall value.
Though depends how you define financialization of course. In this context I just mean cost cutting, being strategic about lowering marginal costs. Excessive dividends or buybacks don't tend to be good for consumers. In some cases they can lower the cost of capital for a business this allow more cost efficient financing though.
I think it is the fate of companies that got big on innovation, but lost their edge because they got too far ahead and priorities shifted. They lose their ability to be innovative as others catch up so they have to find other ways to give shareholders value.
We'll find out. We have four companies worth over US$1T, adjusted for inflation this is larger than any time in history (including Rockefller IIRC). Who knows where this is going to go?
(I think about MMORPGs where stats just keep going up exponentially, like how in WoW classic, top DPS was like 500 and now its like 50,000. But that's just a game.)
For now it's not super clear since we have a lot more stuff in the world, a lot more money, and real ones, too, not just paper money. Actual production and services.
Developing countries, including China have added probably between an extra 30 to 60% more middle class folks with disposable income. That's going to grow because of India, Africa, South East Asia.
The bigger long term threat is the unsustainability of this, global warming and destruction of ecosystems.
That doesn't mean we'll avoid a major wealth wiping financial crash this decade but we'll get over it and continue to grow.
Presumably what we saw as "fall" from the outside was Apple pouring hundreds of millions of $$$ into building M1, fixing design flaws in newer MacBook Pro lines etc.,
I think companies have pretty clear life cycles. First they start, they grow, then the plateau, and then fall. Sometimes you may get a few bumps in the road, but generally this is the long-term cycle.
Financialization makes the most sense to engage when when you are plateaued and possibly falling. You can still extract value.
I think that the fall of Sears was a great example of the financialization and extraction of value of a dying company.
Financialization is trading off future potential growth or even long-term staying power for $$$.