Let’s Get Ready to RundleJuly 10, 2020
Few firms counterpunch like Walmart. “Innovation” has a new, first-of-its-kind feel. But most stakeholder value is a function of firms benchmarking, copying, or stealing other firms’ great ideas: improving them, putting more wood/capital behind the arrow, or placing it on broader platforms.
Walmart is planning to launch Walmart+, their response to Amazon Prime. This makes all sorts of sense. Every CEO has to convince investors they should buy shares, as there is a good/great chance the equity will double in the short to medium term. So, logically, the CEO is saying they can double revenue. Even if Walmart recognized operating leverage, they may need to add $400 billion or more to their top line. So, Doug McMillon needs to add the US oil industry to his revenue line. That’s unlikely. So, what to do?
Simple, the most accretive action taken by any $10 billion or larger business is to move from a transactional model to recurring revenue. This exploits one of the fundamental flaws of our species, the inability to register time. Time flies — it goes faster than our estimated consumption of a product during a given time period. Only 18% of gym members go to the gym consistently.
In addition, the markets are a reflection of ourselves, and humans hate uncertainty. Waking up next to a stranger is exciting in the short run but exhausting in the long (see above: recurring revenue). Walmart interacts with American families transactionally, while Amazon lives in 82% of their homes. That could begin to shift with Walmart+.
If Walmart+ becomes a $5 billion division, growing (much) faster than the core business, Walmart could recast their business and register a greater multiple. This puts a doubling of the market capitalization within reach on 4-6% annual revenue growth (doable). In the last five years, Apple has grown their revenues 15% but more than doubled their market cap. How? Several factors including a bull market, monopoly abuse, and renewed growth of the most profitable product in history, the iPhone.
However, most of all, most of all … I like the way you move (couldn’t resist). The gangster factor in a trillion dollars in shareholder growth has been Apple increasing their recurring revenues from single digits to 23% of revenues. Walmart has the same opportunity to recast their multiple with a rundle they continuously enhance and refine. #counterpunch
Twitter & Subscription
Other than Facebook and Google (Genghis & Khan), a decent proxy of a media firm’s prospects is the percentage of revenues from subscription. Twitter said in a job posting that it was building a subscription platform under the code name “Gryphon.” The stock surged on the news.
Twitter’s ad-dependent revenue model not only fuels outrage and abuse, but is largely responsible for the firm’s anemic growth. Transitioning to a subscription model will free the platform from bots and dampen the toxicity that is … Twitter. In other words, the platform is on the precipice of sustainable innovation. More on why a subscription model makes sense for Twitter in my post from last month.
It would be difficult to find a greater concentration of b*tches (privileged jerks toggling between attacks and victim complex) than the VC community on Douchehouse (i.e., Clubhouse), the social platform that brings voice to the overheard — venture capitalists. Their loudest complaint: unfair media bias against tech.
The focus of their ire last week was a young NYT journalist, Taylor Lorenz. Their claims of bias just don’t hold water. Historically, the media has idolized tech founders — the idolatry of innovators we often write about. But it does feel that the tide is beginning to turn. Are Americans starting to pay more attention to missteps in data privacy, fake news, platform design, diversity, and company culture?
If yes, it’s overdue. Our innovation economy has morphed to the monopoly economy and now the exploitation economy. Many/most of the firms that have grown shareholder value by billions in a short time have arbitraged the inability of our government, and our instincts, to keep pace with technology. On the other side of the billions of shareholder value captured by increasingly few from social media, trading, or ride-hailing apps are millions of depressed teens, election interference, and a decrease of the dignity of work (no health insurance, sub-minimum wage compensation).
We looked at the 25 most recent articles in the NYT Tech section and found that 68% of them presented technology (articles on products, applications of those products, or their founders) in a positive or neutral light. Only 32% of those articles took a negative/critical approach. We found Taylor Lorenz’s 25 most recent NYT articles to be mostly positive and to cast technology and its users as endlessly inventive. Only six, or 24% of these pieces, presented technology or tech founders in a negative light.
A small sample size, but an indicator that despite the externalities and co-morbidities of technology, the only bias appears to favor tech and VCs.
My best friend from college is with us in Colorado. He lives in LA, so we don’t see him much. We took my boys for dessert, and he asked my youngest, “How is your hot chocolate?” My nine-year-old, as nine-year-olds do, answered with no filter: “I don’t know, I’ve only eaten the marshmallows so far.”
Having my best friend spend time with my boys, at this age, when they roll their eyes in public when I joke, but then ask if they can fall asleep with me … is nice. Real success, what you highlight to others whose opinion you value, is not a life where people love you, but a life where you love others.
Being with Lee is so rewarding. He’s one of two people in the world who make me laugh uncontrollably, and he inspires reflection. When we were in college, his ruggedly handsome father would visit and kiss Lee on the lips. It was shocking at first but took purchase. I decided 20 years later I would kiss my boys, as long as they let me. Lee noticed it today: “They kiss you!” The only time it feels as if this all (sort of) makes sense is when my boys grab my hand or kiss me, as if it’s muscle memory.
Lee asks again, “What do you want to do with the rest of your life?” I pause, and it strikes me: “I don’t know, I’ve only eaten the marshmallows so far.”
And then we laugh.
Life is so rich,
P.S. We’re hiring for several positions, all remote to start — come join our growing team. And this week on the Prof G Show, we spoke with Richard Florida about the future of cities (thriving) and answered #officehours questions about innovation roadblocks, equity crowdfunding, and omnichannel strategy. Have a listen.