Tag Archives: market

Is Google on the decline already?

In this 8min INSEAD knowledge video,¬† Silicon Valley veteran, Adeo Ressi, argues that there are clear market indicators that Google is on the decline already and the trend is here to stay as companies like Facebook and Twitter continue to make their way in the new connected world…

An internal market as a source of innovation

Here is an idea that I would like to see implemented more often in large corporations. A lot of start-ups exist because entrepreneurs get access to funds through venture capitalists. This relationship between entrepreneurs and venture capitalists works like a market. So what if we applied these principals to innovation and entrepreneurship within a large corporation?

In other words, innovators and entrepreneurs would present their ideas and projects to an internal market, that would be ready to place bets on some of them. Within a large corporation, who has the money? Business Unit General Managers so these guys are the ones, who would act as “internal venture capitalists”. Rather than¬† spending their R&D $ on projects coming from the labs, they would have access to a much broader scope of projects and ideas that they may be interested in pursuing further.

Remembering an article I came across some time ago that was showing that a large group of people is more likely to make more accurate future predictions than a panel of experts, we could even imagine that the project selection process is not the privilege of the GM’s and their direct staff any longer but is actually opened to all employees.

I’m wondering what kind of innovation and entrepreneurship would emerge within a large corporation if they implemented a model like this one…

The commodity crunch in consumer packaged goods – McKinsey Quarterly – Retail & Consumer Goods – Strategy & Analysis

The commodity crunch in consumer packaged goods – McKinsey Quarterly – Retail & Consumer Goods – Strategy & Analysis.

Here is another interesting short article by McKinsey, which explains the challenges of managing price changes to the customer in a cost-volatile environment. Management teams have 2 options when input costs are increasing:

  • They can keep prices the same in order to keep and/or build a competitive advantage on price. This decision will help protect short-term revenues but will reduce their margins and threaten the long-term perennity of the company
  • They can increase prices but then they take the risk that consumers are turning away from their products for cheaper alternatives

That being said, let’s take one step back and broaden the field of possibilities:

  • Apple has been very successful so far in selling consumer products at a very significant premium on price because consumers were willing to pay for the perceived value of their products
  • Reversely, for all these consumers that are extremely cost-conscious, isn’t there a huge market for simpler and cheaper products? Looking at the success of products like Tablet PC’s, a lot of consumers are not looking for sophistication, they are looking for a communication and media device at an affordable price. The speed of the processor, the amount of memory, the size of the disk, the video card, are not criteria that they will use in their buying decision. HP seems to have understood it by launching in India their “Dreamscreen” product. But they are not the only ones.

This is a good first step ! Hopefully, there will be many more like this in the future with less emphasis on features and functions and more on product usage. This may be the key to sell cheap products at a price, which still enables to generate decent margins so that companies can keep innovating and developing new products we will want to purchase and play with…

The traps of market capitalization

The other day, in preparation of a customer proposal, I was reviewing publicly available data about the company I was dealing with in the Manufacturing and Distribution Industry (MDI). Interestingly enough, the enterprise value of the company was 59billion$ and its market capitalization was 45billion$, which is 14billion$ less… gush, that’s a whole lot of money. How can this be that a publicly traded company is undervalued by the market by 14billion$ when at the same time other internet companies that I do not need to name are overvalued by amounts, which may be even higher than that?

This may have to due with where the funds are coming from and the expectation that if you cannot show double digit growth and double digit margins, you are just a loser on the financial market. But the financial market is not the industry, it is just the financial market and the intrinsic value of the company remains the same, which is 14billion$ more.

On the same token, capital riskers seem to value more these internet companies because they are less asset/capital intensive and gives today faster and better returns. However, how long will this last? How long will these companies keep their competitive advantages, which explain that they are so much overvalued and cherished by the market? And when this will stop, how much enterprise value will remain? Not much compared to the industrial company I was mentioning above. Capital riskers are attracted today by internet companies like moths by light in the night. However, when the sunrise comes, I’m actually wondering who will survive…