The rise of the intangible corporation

Justin Fox quotes Oxford business professor Colin Mayer riffing off of the seven age of man from Shakespeare's As You Like It.

At first the merchant trading company established by royal charter to undertake voyages of discovery and promote commerce around the world. 
 
Then the public corporation created by Acts of Parliament to engage in major public works and the building of canals and railways. 
 
Then with the freedom of incorporation in the 19th century, the private corporation -- the seedbed of the industrial revolution and the manufacturing corporation.
 
Next comes the service firm and the rise of the financial institution.
 
The fifth age is the transnational corporation putting a girdle around the world and running rings around national governments.
 
Last scene of all that ends this strange eventful history is the mindful corporation -- sans machines, sans man, sans money, sans everything.
 

Mayer uses WhatsApp as his canonical example of a company with no assets and very few employees and yet a huge market cap (given its $22 billion purchase by Facebook), but just a short while before that Silicon Valley was all abuzz about Instagram for the same reason, albeit a lower price in relative terms.

Just wait until VR goes mainstream. The most valued bricks and mortar and real estate of today are digital. It's a lot cheaper than the real thing, and a whole lot less regulated, too. Tech companies do love their degrees of freedom.

Amazon Dash Button

Announced today, Amazon Dash Button is a branded single-purpose button you stick somewhere to press when you need more of a specific product, like Charmin toilet paper or Tide detergent.

[Because it came out the day before April Fool's Day, many people thought it was a prank, one of those fictional products tech companies love to release each year on April 1. Wasn't it Arthur C. Clarke who said “Any sufficiently advanced technology is indistinguishable from a tech company's April Fool's joke”? Something like that. April 1 in the tech world is like the entertainment world's red carpet, a ritual of dog and pony show and savage critique. We all know our parts. It's already begun, it seems like 80% of them are from Google. 20% time may be dead, but even 1% time from some fraction of a lot of computer engineers is one of the more powerful matters on Earth.]

On the one hand, the Dash Button is built off of some of Amazon's strengths, much more so than others they've tried. It is dirt simple, almost like one of AWS's primitives but in hardware form, and it's meant to make shopping easier, something they've always tried to do, from reducing shipping prices to 1-click shopping and onwards. Short of having products magically order their own replacements when you're close to running out, it's about as easy as it can be to replace a frequently used consumable. It is exclusively for Amazon Prime members, another perk to throw under the umbrella of that subscription, and I'm a huge fan of subscriptions a business model.

Dash Button ties in to Amazon's customer experience strengths, bypassing its weaknesses. When many people say they don't like Amazon's UX, what they usually mean is Amazon's UI. And yes, I agree, Amazon could really use more design leadership and skill on that front. The Dash Button doesn't have any visible software UI, though. It's just a physical doohickey, and it looks okay. I can't speak to the sensation of the button as it depresses, but I look forward to a detailed discussion by John Siracusa on some future episode of ATP.

[Perhaps the greatest return on investment thing that Amazon could do, in my opinion, is hire a design expert, have that person report directly to Jeff, and give that person final say-so on all major UI decisions. I've often said that who reports directly to the CEO is a tell for what a company values, and as far as I know design doesn't have a seat in Amazon's C-suite.]

Beyond UI, though, are many often overlooked elements of UX, especially in retail, and on those matters Amazon is world class. Customer service, packing, shipping, payments, returns, replacements. No company more reliably and consistently ships you stuff you order as quickly or reliably. And, if something goes awry, you just know they'll make you whole, no questions asked, unlike many other companies. It's that repeated execution that's made them one of the most trusted brands in the world. The Dash Button plugs directly into that whole incredible logistics network.

I hate the term Internet of Things, it is just an awful piece of tech jargon, but the Dash Button is one of the more practical of the early entries into that space. I know customers are only supposed to be able to ask for faster horses, but that doesn't mean they want to pay $35 to change the lighting in the living room to purple from their smart phone. It means they just want to get places faster.

Or in this case, they want faster horses delivering their stuff. As Amazon knows better than almost any company, the customer demand elasticity curve is highly sensitive to shipping costs and shipping time. I thought Amazon was joking when Jeff went on 60 Minutes to unveil their early testing of drone delivery (I thought at the time that some other planned reveal fell through so they scrambled the drone experiment as a last minute replacement since the segment had already been teased in CBS promos), but their continued testing there shows how much they know that being able to ship products in near real time is the next rung in Maslow's retail hierarchy of needs. They are being attacked by horizontal players in that space (companies that just specialist in delivery, like Instacart and Postmates, for example), and they will continue to press forward with their vertically integrated strategy. May the best player win; I'll be on my sofa waiting.

On the flip side of the ledger, the Dash Button feels like an intermediate way station on the journey to some more elegant solution. I suppose it's possible this is the endpoint for shopping replenishment in the home, but I personally don't want a bunch of branded buttons stuck all over my apartment. I can see why a brand would love a button that locks a user into their product line, but it's possible for a technology to be too primitive, too low level.

What level of abstraction do you settle in at? That's always the trickiest of product decisions, and it depends a lot on the context. Screen size, how you input data, app launching modality, all of that matters. The app Yo was widely ridiculed released on the iPhone, but there's the germ of something fascinating there. On something like the Apple Watch, with its extremely limited screen size and input modality limitations, being able to send a slight vibration to your loved one's watch with one tap, perhaps with an accompanying sticker? Just to let someone know they're in your thoughts? Powerful. I will never underestimate the power of ambient intimacy. Loneliness is one of the two grand eternal problems in tech (the other is boredom).

My bet is still that some solution with a higher level of abstraction and functionality will win out in this replenishment shopping space, but for now, the Amazon Dash Button is an intriguing first crack at it. I just need one for Harmless Harvest Coconut Water. I'm always running out, and because it's not heat pasteurized it's perishable so I have to buy it locally (delivery services like Instacart don't deliver perishables). I but it from CostCo for the discount (that stuff is not cheap), but I hate fighting the madding crowds of CostCo. I brave that capitalist jungle, though, because I am as addicted to Harmless Harvest as most people are to coffee.

Give me a Harmless Harvest Dash Button, and, if you're really evil, program it to work only occasionally, on some random interval, and I'll be pressing that thing like a rat in a Skinner Box mashing on the response lever.

Universal banks losing out to specialists?

Although it dislikes the term, JPMorgan is a prime example of a universal bank. Others – Citigroup, Bank of America Merrill Lynch, Barclays, Deutsche Bank – also combine retail and investment banking but JPMorgan is the most prominent. 
 
And universal banks have been, to put it politely, a disappointment. JPMorgan produced a return on equity of 9.4 per cent last year. That is barely adequate but it is the best of a bad bunch. None of the others made it past 5 per cent. And last year was not out of the ordinary. Those five universal banks together have managed an average return on equity of 5 per cent over the past five years. There is always an excuse – fines, new rules, restructuring charges, tough conditions in one market or another – but these are all part and parcel of universal banking. 
 
Compare that with the specialists. Look at Wells Fargo, which is predominantly in the retail sector, with a 12 per cent five-year average ROE. Or even Goldman, a pure investment bank, with 11 per cent. 
 
The universal banking model is broken, a fact some banks have realised. UBS and RBS have moved. Others – Deutsche and Barclays, for example – have been less radical so far and need to go further. The US universal banks are the most wedded to the model, promising better returns in the future. But shares in almost all of them trade at a discount to specialists. The message from investors is clear.
 

Paywalled piece from The Financial Times, via The Browser (which, if you're into more than just technology news, is a great, short, curated daily list of links to interesting reading online; another artisanal service I happily subscribe to).

How does that legendary Jim Barksdale quote go? “There are only two ways to make money in business: One is to bundle; the other is unbundle.”

Certainly feels like times are ripe for an internet only financial services play. Our arcane financial system has held up longer in its current form than I expected. I know there have been a few, though I have not tried any of them, but this article is more evidence that a horizontal (or specialized) attack might be fruitful. I'd probably start by trying to actually own the customer's money/wealth/assets, then branch out into figuring out ways to sell them financial products for those (e.g. insurance, credit cards). Customer acquisition is such a bear, though, that it might be easier for a trusted and well-known company like an Amazon to tackle.

Why the world is getting weirder

It used to be that airliners broke up in the sky because of small cracks in the window frames. So we fixed that. It used to be that aircraft crashed because of outward opening doors. So we fixed that. Aircraft used to fall out of the sky from urine corrosion, so we fixed that with encapsulated plastic lavatories. The list goes on and on. And we fixed them all.

So what are we left with?

As we find more rules to fix more things we are encountering tail events. We fixed all the main reasons aircraft crash a long time ago. Sometimes a long, long time ago. So, we are left with the less and less probable events.

We invented the checklist. That alone probably fixed 80% of fatalities in aircraft. We’ve been hammering away at the remaining 20% for 50 years or so by creating more and more rules.

We’ve reached the end of the useful life of that strategy and have hit severely diminishing returns. As illustration, we created rules to make sure people can’t get in to cockpits to kill the pilots and fly the plane in to buildings. That looked like a good rule. But, it’s created the downside that pilots can now lock out their colleagues and fly it in to a mountain instead.

From a great piece by Steve Coast on why the world is getting weirder. Follow the Pareto Principle long enough and you fix all the low-hanging fruit with a whole bunch of rules, leaving just the black swans unaccounted for.

Anyone who has worked on any tech product or service long enough, through many cycles, knows you can end up working on just edge cases. Often, when you hit this point, you're listening to a sliver of power users and are at the point of such diminishing returns that accommodating them might be counterproductive as a whole. All you do by adding that random feature they want is add some interface overhead and friction for majority of your users, whose problems you already solved.

At this point, if the user base is large and healthy enough, most smart and ambitious companies move on to launching new products and services with higher marginal returns on their resources 3 . The resource vacuum is often exacerbated by the fact that the most ambitious employees would rather work on the new new thing. So they move on to the latest hot top secret project, leaving the former product or service in a maintenance mode, with minimal oversight.

  1. Large and successful multi-product companies that reach this point often just kill off the product or service if the user base isn't large enough. Think Google Reader or Apple's Ping. A startup that reaches that point often pivots, sells themselves, or folds. ↩

It's usually the right near-term economic thing to do, but it can also leave some widely used products or services with chronic issues or imperfections that puzzle users and outsiders. How, they wonder, can a company with thousands of employees not bother to fix such longstanding and seemingly trivial issues? This is why competition is healthy, even if sometimes it seems like we have too many redundant products/services in tech.

Coast's post also includes some good career advice.

On a personal level we should probably work in areas where there are few rules.

To paraphrase Peter Thiel, new technology is probably so fertile and productive simply because there are so few rules. It’s essentially illegal for you to build anything physical these days from a toothbrush (FDA regulates that) to a skyscraper, but there’s zero restriction on creating a website. Hence, that’s where all the value is today.

If we can measure economic value as a function of transactional volume (the velocity of money for example), which appears reasonable, then fewer rules will mean more volume, which means better economics for everyone.

Far and near future sci-fi

Enjoyed this tweetstorm from Noah Smith a short while back. Here's a cleaner version of it, though it doesn't look embeddable. I'll have to do this the hard way, then:

Having tried lots of demos recently, I wonder if VR will inspire a growth spurt in near-feature sci-fi movies just because it is more cinematic and compelling on screen than most of today's tech in which the primary action consists of a programmer typing on a keyboard.

Steven Spielberg is set to direct the movie adaptation of Ready Player One next, and I see it as a natural spiritual successor to Minority Report, which contained a lot of ideas from futurists that Spielberg gathered for a brainstorm session prior to production. Minority Report felt like medium-term sci-fi when it came out, and it's already clear that many of its predictions were off. From a technological point of view, if not a social one, Ready Player One reads like very-near-term sci-fi.

There's a shortage of good near-term sci-fi in the movies, often because the filmmaking cycle (from idea to spec script to script to the option to years of sitting cold to finally going into production) is still so much longer than the actual technology industry cycle. Given the momentum of VR now, it's time to mine this fertile ground for more high concept movies that explore the norms after mass adoption of the technology. Given the incredible price pressure on VFX shops in Hollywood, many of which are closing up or suffering margin compression, a spurt of movies featuring a lot of VR scenarios would be a welcome supply of work, too.

I realized the other day that I will watch, in my lifetime, a VR movie about VR technology. I'm excited. No spoilers please.