Daring Fireball Linked List: What Could You Buy for $8.5 Billion?
Apple Market Cap AAPL.
I was hired in June 2000 to be the first executive in charge of global IT strategy at the Walt Disney Company—a job I created for myself out of my long relationship with the new CIO of that company. On my second day of work in this high-profile job, the CIO jokingly asked me a question that wound up teaching me a valuable lesson.
“So, you have been on the job for a full day now… What is your big strategic idea for Disney?”
Naturally, I had thought of answers to that question long before taking the job. So, in the spirit of the way in which the question had been asked, I answered.
“Simple. A three-way merger between Disney, Apple and Pixar. Pixar is a no-brainer, but the real payoff comes in Apple. Their migration to the Intel platform means that their software could conceivably run on Windows machines and Windows software could run on Macs. I think Apple is going to eventually overtake Microsoft in the tech world. Future Disney product will be completely dependent on new tech, so being a player in the tech world will be critical.”
The CIO laughed and called me crazy. But he listened as I pitched it further. I wound up actually discussing this idea first with the CFO of Disney and then with the Chief Strategy Officer. Both of those seasoned senior executives advised me never to mention it again or Michael Eisner would see to it that I was fired. Michael Eisner and Steve Jobs hated each other, so there was no point in even contemplating a merger no matter how brilliant a move it would be. I knew that such a strategy would be over my head anyway, so I let it go without further pushing. I did buy AAPL stock personally, though, and that turned into one of the best investments I ever made.
Today, John Gruber opined on the valuation of Microsoft’s acquisition of Skype for $8.5 billion by pointing out that the hapless bozos (and I am being generous in that characterization of Balmer and his battalion of boneheads) in Redmond could have acquired Apple in 2004 for a billion dollars less! Kind of puts valuation of Skype and the stupidity of Microsoft strategic thought in perspective.
In June of 2000, we estimated that Disney could have acquired both Apple and Pixar for less than $10 billion (ignoring all the poison pills). Seven years later, Bob Iger took the helm from Michael Eisner and quickly set about mending the relationship with Steve Jobs and closed the deal to acquire Pixar (alone) for $7.4 billion. Steve Jobs became the largest shareholder at Disney and was appointed to its Board of Directors. Steve remains the largest shareholder and a board member to this day.
So what lessons did I learn in this? On a personal level, I learned I had no taste for the egos and bullshit that float around big corporations. I also learned that having the best idea in the world means nothing if you can’t sell it and implement it. I learned how some CEOs care far more for their own ego than they do for creating shareholder wealth. It’s not what they teach you in MBA school, kids! On a broader more strategic level, this experience coupled with many others to temper my zeal for Republican politics.
“Huh?” you ask.
Digressions are us.
I will explain, but first let me hastily add that my disaffections with the GOP do not mean that I am a (gag!) Democrat. The Dems are far far worse! But back to lessons learned…
Republicans favor private sector economics and free enterprise. Right on. If you are talking about free enterprise and getting government out of the way of entrepreneurial innovation, count me in. But the GOP rationalizes their support for wealthy multinational corporations as stalwart defense of free enterprise. Bullshit. The large corporate lobbyists make sure that upstarts are regulated out of opportunity to compete while protecting the deep pockets of those who can bear the burden of regulatory compliance. Disney cemented my life lesson that all large organizations (private or government) are at best dysfunctional and at worst downright corrupt. The key word here though is multinational. Seeking exploitation of foreign markets is a reality in today’s global economy, and corporations have no obligation to serve patriotic interests. They serve profit motives, and that is called capitalism. I have no issue with capitalism per se, but one must consider a nation’s interests independent of corporate interests. You do not take the labor side as the Democrats do and drive corporations out of America completely, but neither do you seek to placate the largest corporations as a matter of public policy as the GOP often is perceived as doing. The USA is a brand just as Japan, Germany, Korea and India are brands. These brands are not corporations but sovereign nations, as well. The nation must compete as surely as the multinational corporations do. However, a corporation is going to exploit cheap labor and resources to maximize profits. Period. Now, in a global economy that is enabled by information moving around the globe at light speeds, corporations have outsourced and off-shored their operations for greater profit and global competitiveness. They are only doing exactly what they are set up to do.
Unfortunately, corporations have few allegiances to the nations that host their headquarters. They chase profits, not purposefully build national brand. The job of building a national brand is that of the American people through their government. Our government is failing miserably due to a two-party ingrained system that no longer works. You have the Democrats who pander to corrupt labor unions to steal their campaign funding from union dues. You have the GOP (and the Democrats) who pander to uncaring multinationals to get financial support to win domestic campaigns. These are the same corporations who displace labor and move large portions of their economic engines to cheaper third-world locations. Consequently, the economy of a communist nation (China) will likely exceed that of the USA by 2016. The standard of living is increasing all over the world in countries like China, India, Brazil and all others who are willing to play ball with the profit-seeking multinationals. Meanwhile, the standard of living in America is in serious decline with high unemployment and a disappearing middle class. Naturally this leads to an outflow of wealth from America to these other nations.
The U.S economy is said to be in a “jobless” recovery. How can this be? Easy. If corporations are more profitable, their earnings increase and so does their stock price. Wall Street is bullish and the GDP actually edges up. The stock market goes up even though domestic unemployment remains high or even goes up. The extra money flowing into the economy finds its way into the hands of government, investors and corporate elites, but not into the rest of the populace. Corporate profits have very little relationship to employment levels in any single nation. In fact, the more companies can displace labor with automation or reduce the cost of labor by hiring cheap labor in third world locations, the better their earnings outlook. The lack of employment in the U.S. hurts the domestic market for consumer goods and services, but markets outside of the U.S. are increasing more rapidly than the damage high unemployment does locally. Calling this economic recovery “jobless” is a purely political statement because it is nothing of the sort. Plenty of new jobs are being created in the private sector; they just are being created outside of the U.S. borders.
So, Corporate America is doing just fine by taking their business elsewhere. They are taking their business elsewhere because that is where the growth in affluence is occurring. In fact, the multinationals are creating future markets by first sourcing their labor and other resources inside of these foreign nations to supply existing wealthy markets like that of the U.S. Eventually, it will balance out and the standard of living around the world will become much more homogeneous. Wealthy societies will become poorer while poor populations become more affluent (but never to the disproportionate levels of American and European standards of wealth over the past century). Those who sit atop these multinational corporations will become ever wealthier and those who are exploited will simply become somewhat more comfortable than they have been. It is far easier to be a robber baron in Central America than it is in modern America because the governments are based more on old world elitist models than the American experiment in governance was. Corporations are rediscovering the late 1800s to be possible again in more needy nations governed by a more autocratic ruling elite, at least until a more global labor movement repeats the effects on the U.S. and Europe in the early 1900s and tempers their profits. By then, the global redistribution of wealth among the middle classes will be mostly complete. A global middle class will emerge, but it will be less affluent than the U.S. middle class of the last century. The average U.S. citizen will be very comparable to their counterparts in India and China in comforts and lifestyles.
Wow. I better stop now before I write a damn book.
To sum up, John Gruber reminded me of how everything in the world is connected to capital. That reminded me of my first-hand involvement with those who make the big decisions on how to grow capital through profits. That reminded me of how those who pander to Corporate America for political gain are helping to destroy our standard of living and global competitiveness. That reminded me of how corrupt labor unions have driven profits out of America. That reminded me of why I am so politically disenfranchised.
But mostly it reminded me of past glories and failures trying to be sensible in a world of insanely self-centered leaders. I am richer for the experience and the lessons learned.
