It gives me no pleasure to once again have to discuss the long-standing issue of the way companies are capitalized, which in practice is a disincentive to good management and innovation.
This can be perfectly illustrated by two recently published articles: “TikTok’s enshittification”, by Cory Doctorow; and another in similar vein by John Herrman in New York Magazine entitled “The junkification of Amazon”. The authors’ choice of words leaves little to the imagination: companies, driven by the dynamics of the markets and their analysts, tend to become shittier, junkier.
Why role do the markets play in this? In practice, that depends on the forces behind them. Markets are not short-sighted for no reason, but because a cohort of incompetent analysts whose choices are often bettered by a monkey throwing darts at a wall, decide to make completely misguided value judgments about the companies they supposedly analyze.
Examples of companies clearly damaged by the tyranny of markets that value only the short term and quarterly numbers abound. Amazon is a particularly interesting case, because we are talking about a company that, for many years, was willing to ignore those analysts, favored growth over profit, reinvested everything it earned and more, and continued to rise consistently. Now, however, it is incapable of making the right decisions, betrays the most basic principles it was founded on, and is now a hellscape littered with fakes and copies made by the company itself and placed above the original thanks to the company’s own manipulation of its search algorithms. From being the best e-commerce company in history, it has become a platform that deceives both its users and the companies trying to sell their products on it.
Elon Musk, a man not averse to controversy but who knows something about the markets, has no illusions: in 2018, he tried to delistTesla, fed up with the opinions of analysts conditioning his decisions and with a bunch of morons in herd mode engaged in betting against the company as if they were in a casino, making an announcement on Twitter for which he was taken to court, in a case in which he has just emerged victorious. The verdict? Simple enough: investors who claim they were wronged were simply “gambling and pretending to use the lawsuit as if it were insurance.”
A few years later, Musk got it right: he bought Twitter, then immediately delisted it. Before then, many well-known analysts had gone to the absurd lengths of punishing its stock when it conducted bot cleanups, because they interpreted it as a bad thing. Only by excluding the company from the market could he devote itself to improving it, to eliminating the garbage that populated it and to proposing innovation and new services. The result? Two months after its launch, Twitter Blue has 180,000 subscribers in the U.S. who pay $8 a month, it has just launched in more countries, and while that may not seem like much to some, we’ll see how that number evolves as it introduces more services. If it had tried to do any of those things with the company still being traded, the stock would have fallen through the floor, but in time, we’ll see if the decision was right or wrong: for the moment, it was the only way to get the degrees of freedom it needed.
In practice, going public can obviously be a way for a company to capitalize, but it also means having your strategy dominated by what is dictated by a bunch of morons with absolutely no idea of business strategy. I can count the number of cases when the stock market has rewarded customer relations, loyalty, employee motivation or a commitment to innovation on the fingers of one hand. The system, on the other hand, rewards profits at any cost, and transmits this philosophy through incentive systems such as management bonuses.
Trusting the markets is a losing game: either a dodgy casino or a bunch of idiots conditioning what could be reasonable decisions. I’ve seen enough companies go bad after going public to make me mad. But is there a fix for that system, and an alternative?
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This post was previously published on MEDIUM.COM.
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