Greek Complexity

Apple is disgusting

There's no denying that my views on Apple's stock price were wrong last February and remain wrong today. The stock is today up about 15% since my prediction of a fall. But Wall Street has also started looking at the company's broader impact on the world, something I mentioned briefly in this post. Take a look at what Henry Blodget says at Business Insider:

Daisey interviews dozens of (former) workers who are secretly supporting a union. One group talked about using "hexane," an iPhone screen cleaner. Hexane evaporates faster than other screen cleaners, which allows the production line to go faster. Hexane is also a neuro-toxin. The hands of the workers who tell him about it shake uncontrollably.

Some workers can no longer work because their hands have been destroyed by doing the same thing hundreds of thousands of times over many years (mega-carpal-tunnel). This could have been avoided if the workers had merely shifted jobs. Once the workers' hands no longer work, obviously, they're canned.

...

If Apple decided to build iPhones and iPads for Americans using American labor rules, two things would likely happen:

• The prices of iPhones and iPads would go up
• Apple's profit margins would go down

Neither of those things would be good for American consumers or Apple shareholders. But they might not be all that awful, either. Unlike some electronics manufacturers, Apple's profit margins are so high that they could go down a lot and still be high. And some Americans would presumably feel better about loving their iPhones and iPads if they knew that the products had been built using American labor rules.

In other words, Apple could probably afford to use American labor rules when building iPhones and iPads without destroying its business.

So it seems reasonable to ask why Apple is choosing NOT to do that.

More: Your iPhone Was Built, In Part, By 13 Year-Olds Working 16 Hours A Day For 70 Cents An Hour

I am not an investment banker

When I tell people what I do for a living, I sometimes get asked (mostly by people who've heard the term but have only a vague idea what it means) whether I am an investment banker. I generally respond jokingly with something like, "How dare you use cuss words with me!" The joke is often lost on the audience but, for sake of clarity, here is why I'm not an investment banker:

It is curious to reflect that in the London market of 25 years ago, last week’s decision by UBS to maintain investment banking bonuses in the face of a thumping loss would have been literally incomprehensible. Back then, bonuses were paid out of profits. So without profits, where might the money come from? [...] I have written on this hallucinatory procedure before. Suffice it to say that whereas any corporation could in theory adopt it, only the banks have had the brass neck to do so. Then again, only the banks paid bonuses based on imaginary profits of various kinds throughout the bubble years.

from FT: Good old days when bonuses were paid from profits

This is also why I can't imagine myself ever investing in shares of investment banks. I really don't know how to analyse or value companies where profits, cash flows and spending decisions aren't necessarily related, and where the principal-agent problem is so pronounced.

Un-rant

Or

How to Execute A Sheepish Public Climb-down

The Google engineer who mistakenly ranted in public about his employer and his ex-employer Amazon as I mentioned here now posts what's probably best described as an un-rant. After his previous passionate exhortations for improvements to how Google operates, this new post has rah-rah cheerleader (for Amazon) written all over it. Certainly entertaining but not much else.

And Google seems to deserve even more credit than I gave them earlier for taking his original rant in stride so outrageously nicely. Now let's see if they actually act on any of his previous recommendations.

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I think I use too many adverbs. Seriously.

Platformize! Now!

Ya gotta love rants like this: Stevey's Google Platforms Rant

Amazon comes in for a lot of stick, Microsoft gets huge kudos and Google is torn apart. It all feels like an alternative universe, only it's not.

Excerpt:

The Golden Rule of Platforms, "Eat Your Own Dogfood", can be rephrased as "Start with a Platform, and Then Use it for Everything." You can't just bolt it on later. Certainly not easily at any rate -- ask anyone who worked on platformizing MS Office. Or anyone who worked on platformizing Amazon. If you delay it, it'll be ten times as much work as just doing it correctly up front. You can't cheat. You can't have secret back doors for internal apps to get special priority access, not for ANY reason. You need to solve the hard problems up front.

Google gets credit for letting the writer leave this online. On their own servers. But not much credit for anything else.

Frothy valuations: Telling it like it is

Mahesh Murthy is on fire!

This was too good to just stick on my radar feed.

For non-slang Hindi speakers, "topi" literally means "cap" but in this context refers specifically to the dunce-cap. By "topi" investors, Mahesh means investors who've had the dunce-cap placed on their heads but hope to pass it on to an even bigger dunce in future.

Apple: I was wrong

...on current evidence. Six months ago, I called a top on Apple. Since then, the stock price has continue to rise, briefly making it the world's largest publicly listed company by market capitalisation last week. Cue many excited articles. I can't be bothered to link any more. There were also more sensible articles from Paid Content (which contains the hilarious quote: "Microsoft is finally taking mobile seriously but its legal department has had more success than its product development people") and the WSJ among others telling us why such comparisons are, apart from their entertainment value, pointless and stupid.

More important than the symbolism of becoming the world's most valuable company -- note that they were helped by a 14% fall in Exxon Mobil's share price -- is the fact that Apple's stock price rose 4% over the same period, going bang against my prediction.

However, what does all of this mean for the future? Will Apple continue to generate outstanding returns for its shareholders? I remain cynical, but maybe that's just bias. There is the problem of being so big: how do you grow even bigger at the same pace as historically? Lex is doubtful, but perhaps not as much as me. Aswath Damodaran was optimistic as of January. Time will tell. Let's check back in six more months.

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The idea of checking back in six months reminds me of this funny Ellen Degeneres quote I once came across, which you are welcome to use to make fun of me:

The good psychic would pick up the phone before it rang. Of course it is possible there was no one on the other line. Once she said "God Bless you." I said, "I didn't sneeze." She looked deep into my eyes and said, "You will, eventually." And damn it if she wasn't right. Two days later I sneezed.

Creating the McDonald's menu

A fascinating glimpse into the process that goes into adding just one new item to the McDonald's menu. It's not just coming up with the recipe. It's also the supply chain planning, the process standardisation, securing of long-term supplies, and lots more. On the recipe alone:

As Sudha Shankarnaryanan, General Manager, Product Development and Quality Assurance, points out, there is very little written material on paneer. "Even Indian cookbooks have barely a page on paneer processing," she says. In a company like McDonald's which is devoted to processes, it meant Shankarnaryanan would have to delineate and standardise the process herself. The first task she embarked upon, along with McDonald's India's largest food processor Vista, was to figure out a way to massproduce a spicy paneer 'fillet', that would comprise the filling of the paneer burger.

More here. I imagine the same sort of process happens in other countries when they introduce new items, often inspired by local dishes.

The Apple begins to rot?

When I saw this report in the FT two days ago...

Apple demands 30% slice of subscriptions

Apple is dictating tougher terms of commerce on its wildly successful mobile devices, demanding a 30 per cent cut of all subscriber content sold directly through its iPads and iPhones.

The new rules, which apply internationally, say that if publishers offer digital subscriptions they must make the same offer through the App Store. Publishers can still offer subscriptions through their own websites, but cannot link to the website from their app.

...I thought to myself that content owners and publishers deserved the mess they found themselves in. They all ran arms wide open to Apple, starting with the music industry a few years ago, as though it was the messiah, the one and only saviour of their imperilled business models. It was, but quickly does the embrace turn into a bone-crushing bear-hug. If you anoint someone with the powers of a monopoly, you can't expect him not to exercise those powers.

Today's news though is that publishers have an alternative with Google unveiling a new payment system.

Google’s One Pass to take on Apple

Google has thrown down the gauntlet to Apple with a payment service for digital content that features a more generous revenue share for publishers than Apple’s new system. ... The initial partners are all newspaper publishers, but Google said it could also be used for music or video content. ... [Eric] Schmidt, [CEO of Google], called the One Pass service “very publisher-friendly ... We basically don’t make any money on this.”

Gotta love the corporate version of a soap opera, what with Schmidt even being a former board member of Apple.

Street-side gawking aside, I'm bearish on Apple as a company. They make pretty things everyone wants to buy but, gosh, they're expensive, the competition is intense and has arguably caught up with them, the control culture is stifling, the gadgets stop working one day after the warranty period ends, they're squeezing their suppliers too hard, etc, etc. And let's not forget Steve Jobs's health problems, tragic though this is on a personal level.

Apple is the second-largest publicly traded company in America today and in fact isn't wildly over-valued when you look at some basic price multiples, but I'm calling a top. The stock has only one way to go from here -- down.

(If you disagree, remember to make fun of me a year from now when they're the largest company in America!)

SaaS is not Pure Profit, says Yongfook.

Correct. What people who say this actually mean is that each new customer is pure *gross* profit. Which is not at all the same.

This is one of those times one feels like accountants actually contribute something to the world!

Not better search; better-than-search

Earlier this year, Nova Spivack called for a better "decision-support engine" (my phrase; he prefers "help engine", which is definitely catchier). He doesn't say much about what form such an engine could take, either as perceived by the user or its entrails. However, you do get an inkling of what he's thinking about.

Quote:

Search engines cause choice overload. That wasn’t the goal, but it is what has happened over time due to the growth of the Web and the explosion of choices that are visible, available, and accessible to us via the Web.

What we need now is not a search engine — it’s something that solves the problem created by search engines. For this reason, the next Google probably won’t be Google or a search engine at all.

Spivack is a (the?) grandson of Peter Drucker, not that that's relevant to this article. I consider him one of the best technology futurists around in a world of pretenders.

Link: Eliminating the Need for Search – Help Engines