How did they get so rich ?
I hope and trust that this will be an amusing display of my ignorance. I don’t hope to reach David Graeber’s level
David Graeber: Apple Computers is a famous example: it was founded by (mostly Republican) computer engineers who broke from IBM in Silicon Valley in the 1980s, forming little democratic circles of twenty to forty people with their laptops in each other’s garages…
1. How did Jeff Bezos get so rich ? His wasn’t a subtle idea.
The first point is that Amazon went for years without turning a profit. I think his strategy was partly based on new entrant predatory pricing. I would guess that are many B league Bezoses whose firms went bankrupt. In the field of innovative low margin retail, survivor bias is a bitch.
But also, books were a good place to start. There are lots of different books. They are durable. They aren’t so heavy (even pre-kindle).
Then there is big box one stop shopping.
2. Yeah what about the Waltons ? At first (in the 80s I think) I was very puzzled to read the name Sam Walton on a list of the super rich, because I had never seen a Walmart. In fact, that was when I first read “Walmart”. Retail is a very competitive low margin sector. How could anyone become super rich in discount retail ??? My guess is that he was the first to realize how much big cars had changed the game. The long cars of pre-1973 had big trunks, but I guess they just aren’t in the same league as pickups, SUVs and minivans. It is notable that Walmart started in the huge vehicle belt (which I think has a lot to do with belt size if you get my drift).
3. Brin, Page and Google. OK look the original product is actually excellent. Also giving stuff away (including 1 gigabyte e-mail boxes) was smart.
4. Gates. Here I think the key problem was software piracy. The solution was to pre-install everything so pirates would have to know how to handle a computer with an empty hard disk. Also ruthless anti-competitive practices. For years Microsoft wouldn’t sell microsoftware to any firm which didn’t pre-install it in all of their hardware (the Justice Department did win that one — too late). The strategy was 100% explicit. I think it is legitimate except for 2 scams. One is to add bells and whistles so microsoftware run almost intollerably slowly on latest generation machines. I am sure that they did this so that it would run intollerably slowly on older machines if it were pirated. Still semi legit (but damn the paper clip was irritating)
although redemption can be won by all who seak it, and there are worse things than clippy
I think the bloat became criminal only when Microsoft decided to sell upgrade packages which fools used to cripple their computers with the latest microsoftware. Then they had to buy new computers with the microsoftware pre-installed and Microsoft got twice the profit.
Buffett
Action through inaction and the Zen of capitalism. It is key that the secret to Buffett’s success is that he bought and held. He also let management manage. This philosophy of patience and trust in the system is reminiscent of how some players approach 슬롯 사이트, where a calm, steady strategy often pays off in the long run. Buffett’s immense wealth shows just how ineffective active management strategies can be. It is also true that he got richer by being rich. If one has immense piles of cash under management, one can make money with reinsurance, etc.
Zuckerberg: Here I think the secret was being tough on porn and even nudity. Facebook was work safe and family friendly. I think that gave them the edge. The, obviously, network externalities. Like Microsoft, Amazon, and Google, Facebook became what everyone used because everyone used it.
Larry Ellison: Damned if I know. I don’t think I have ever encountered an Oracle product. I don’t even really understand what the hell they sell.
One other element that is common to all. The ability to source the profits created by U.S. R&D to low tax places like Bermuda. In Amazon’s case – also the ability to skirt on sales taxes.
Hey Robert:
Not sure where I was working at the time. I snared an opportunity to interview at Xerox systems years ago in Elmhurst, IL. They made smaller computers which I had just started to get into in the late seventies and maybe early eighties. We were talking casually which is unusual for me as I am pretty formal at interviews. I asked the Xerox engineer whether he ever thought of linking the smaller computers together and sharing information in a business. I suggested they may not need a main frame then. The answer was there would always be a need for a mainframe (edited) and they were emphasizing the mainframes over PCs. Side Note:
As I explained to a person I was talking to recently. most business and I would guess around 90% are small. Simple systems for small companies. Do not need Poisson or smoothing when a Alpha-Beta model still works. Why not pitch your (Loyola) consulting skills towards them as it is an open field?
I think you are right on most of these.
Bill Gates made his money because IBM wanted to ditch the antitrust problems inherent in controlling the operating system of the dominant computing platform. Bill Gates recognized the floral bouquet and jumped higher and faster than any of the other bridesmaids. The inherent antitrust problem was still there, but it took maybe a decade to properly build the case. With Microsoft a software only company, it didn’t run into the problem until it tried to own the internet by imposing its own standards. (e.g. I knew a Microsoft programmer who complained that he was expected to implement Javascript, but not allowed to read the specification. He said it wasn’t fun testifying to that under deposition.)
Walmart leveraged the interestate highway system and understood what they meant for geography. Their stores were often in areas seen as having too sparse a catchment to place a large store. Another chain would look at the area and decide to pass or put in a smaller store. More likely a smaller chain would move in, but it couldn’t match Walmart selection or pricing. Walmart realized that the catchments could be larger in less dense areas since people were going to drive a lot anyway. A bit of extra driving was seen as a reasonable trade off for better prices. Yes, SUVs helped, but Walmart was taking off in the 1970s, not the best decade for larger cars.
You are definitely right about Amazon. Basically, it was a big box store for books. B&N and other big box book stores increased the stock in their stores and drove out the smaller book sellers. Amazon had an even bigger stock, and you didn’t even have to get to a bookstore. Book people don’t like driving. They are less likely to live in Walmart country. (Barnes and Noble understood this well. They had a book superstore down near Union Square even before there were book superstores.)
Amazon was clever in another way though.They built the company modularly. That meant that their data processing infrastructure could be sold separately to outfits like Netflix and maybe half the startups in Silicon Valley. Amazon Web Services is like a hardware store for building web systems. You get some 2″ bolts, #18 wire, some 2x4s and so on and build your own cloud. Amazon deals with all the headaches. They’ve been building out their shipping infrastructure lately. For example, they bought an airport in Ohio. They bought a supermarket chain as a customer. I wonder when they are going to punt UPS and Fedex as shipping partners?
Ellison built Oracle selling database software, doing the requisite system integration and providing consulting services. Microcomputers might have killed the mainframe, but the internet brought it back in force and Oracle was there. (If you ever programmed a mainframe driving hundreds of IBM 3270 displays, the whole send a page, receive a form HTTP cycle was completely familiar.) Its database scaled well, so it was great for corporate data centers. I worked on projects where we evaluated Oracle as a vendor. The product had a pretty good reputation, but Oracle expected customer loyalty and were big enough to make things tough if you wanted a mixed system house. (If you look inside things like Firefox or Apple Mail, you’ll find SQL database software similar, except in scale, to the one Oracle sells. These things are all over, but like power transformers, you barely notice them until they break.)
Google definitely had a better search engine. Yahoo had the first, but it was replaced by Altavista. Google made an even better one. They also figured out how to make money from it. I think they got the idea for search based advertising from an outfit called Overture. That’s still the bulk of Google’s earnings.
I think you did a pretty good analysis. I’m just offering a few complementary ideas. As others have noted, it’s all about exploiting government infrastructure. That’s always been the way to get extremely wealthy. To these guys’ credit, they at least produced something. The traditional means was to get taxing rights or control of a critical port or canal and putting the squeeze on.
Wow smart comments. I guess another question is how did Xerox blow it (they invented the point and click mouse based interface then sold it to Apple). Run, the guy who interviewed you provides a clue.
On Microsoft there is also the Intel issue. IBM could have dominated the business if it didn’t fear the antitrust division (also if it weren’t so rigid that it couldn’t accept a tiny division becoming as big as the rest of it). Intel too could have been a threat were it not for the antitrust division. I think this is the reason Intel insisted on hardware strictly harware all hard wired no Intel written code. They have a rule that all Intel processors have to be 100% back compatible. So they just wouldn’t consider getting in to operating systems. Also they have nothing to do with smartphones (a full Intel processor would consume batteries too fast — even if it were single core).
So they did fine, but left lots of room for other firms (because that’s the law).
I guess the other side of the story is how did huge profitable firms blow it all. Xerox is one amazing case. On a plane I read half of a long sad article about General Electric. But come on — they have to be in trouble with renewables — few can make a giant turbine but many can make photovoltaic cells and windmills so they must lose a huge amount of almost monopoly rents. It wasn’t so wise to get out of banking (see Warren Buffet and making money by having tons of money an AAA rating is worth a lot).
Robert:
I remember that sale and wondered about what could have been. Laughed also as I was on the money at 30 years old and they blew me off. The knowledge base will come with me as there is few around to pass it on to these days.