[Editor’s Note: As I explained yesterday in volume 1, this is an email exchange between myself and Johnny Vulkan. Tomorrow I will post volume 3 (the last). It started on March 10, 2009 and ended last week (it didn’t have to end, but for the sake of this series of posts it did). This is an experiment, let me know if you like it.]
Date: March 25, 2009
Wowza, that was an awesome reply and I’m not quite sure I can top it … I also don’t think it’s worth cutting it up at all and am thinking the best way to swing this is to maybe do one more volley and then a post.
I generally am with you in everything you said. I was realizing recently what a mistake it seems like that the New York Times didn’t charge for it’s iPhone app. What would $5 be for an app that delivers the news to you daily/hourly/secondly (is that last one actually a word). And, as I may or may not have said to you when we had breakfast which actually started this whole conversation, I think there’s something funny about the newspaper industry crying about their product being undervalued when they’ve been the one undervaluing it for years (ahem 12 issues of a $5 magazine for $12). With all that said, I’ll leave your comments alone other than to say that the big issue seems to sit in this phase of the equation you laid out: “has eyeballs and advertisers love eyeballs” … I’m certainly not the first person to lament the media industry’s addiction to ads, but it’s a sad state of affairs.
Now, onto the other piece. I had actually run across this a few weeks ago and loved it. As someone without a ton of knowledge about finance, I’d always wondered how we got to a place where quarterly profits became more important than long-term strategy. How can anyone ever be successful if all that matters is whether you show year-on-year growth (I like to remind people that success is actually a relative, not absolute measure, most often calculated by looking at how much you put into something and how much you got out). Now my big question for Welch (and I guess you’ll have to stand in for him) is how do you fix this problem? He’s coming out and saying, “Shareholder value is a result, not a strategy,” but I don’t see the prevailing mindset of the market changing overnight. So what needs to happen? Do a whole lot more companies chose not to go public in the future? What does fundraising look like in that case?
I’m also not surprisingly reminded of the Google prospectus:
As a private company, we have concentrated on the long term, and this has served us well. As a public company, we will do the same. In our opinion, outside pressures too often tempt companies to sacrifice long-term opportunities to meet quarterly market expectations. Sometimes this pressure has caused companies to manipulate financial results in order to “make their quarter.” In Warren Buffett’s words, “We won’t ‘smooth’ quarterly or annual results: If earnings figures are lumpy when they reach headquarters, they will be lumpy when they reach you.”
If opportunities arise that might cause us to sacrifice short term results but are in the best long term interest of our shareholders, we will take those opportunities. We will have the fortitude to do this. We would request that our shareholders take the long term view.
Many companies are under pressure to keep their earnings in line with analysts’ forecasts. Therefore, they often accept smaller, but predictable, earnings rather than larger and more unpredictable returns. Sergey and I feel this is harmful, and we intend to steer in the opposite direction.
Those dudes were smart, but I even feel like they’re cracking a bit …
Thanks for playing along.