The any-moment-now Facebook IPO is going to make a lot of money for a few select individuals in a very short time, but what lasting value is Facebook creating? How does this product improve the lives of consumers in the long run?
When any private company “goes public”, whose lives does it improve? And, outside of pecuniary wealth, what improvement is there? Furthermore, given the high degree of volatility in the stock market in the last decade or two, will any of us look at Facebook a generation or more down the road and be glad we have it in our retirement portfolio?
Or, will we be glad we dodged that bullet? Of course, none of us knows. That’s what makes the stock market so much fun one day and such a gut-wrenching experience the next.
What’s my point? That with the modern stock markets – the market of grand expectations, not reality – there is no such thing as long-term value. “Buy low – sell high”, right? A company’s stock price is a fiction, based solely on investors’ expectations. A company’s real value has nothing to do with the price of its stock. I’ll give you an example.
The price of Amazon’s shares dropped this morning (about 7.5%) because they reported $17.4 billion of revenue in the last quarter of 2011. Mull over that image for a moment – that’s a lot of money. Then, ask yourself – better yet, an investment analyst – “Why?”
Was it because Amazon’s expenses were more than double their revenue in 4Q ’11? Au contraire, mon frère. The bettors (or speculators) on Wall Street anticipated Amazon’s revenue would be in the neighborhood of $18.3 billion!
That’s the way it is with publicly traded companies. Everything is based on meeting analysts’ – and, by implication, shareholders’ – expectations. Are the company’s end customers satisfied? Maybe even beyond mere satisfaction? Joyful and elated? Doesn’t seem to be important. Facebook is an ongoing source of disappointment to many people (mind you, that’s merely anecdotal), yet its imminent IPO has investors lined up to buy a piece of that Facebook pie.
Is the company committed to making incremental improvements to its products, its people, and its systems? That’s the way I think we’d all, deep down, like companies to be – improving on quality and providing real value. But the cynic in me says that’s not so with far too many public companies.
That’s why I think that — barring a major philosophical change in the way business is conducted (specifically, how the stock markets are managed) — Quality is currently a losing proposition.
Quality, defined by ISO 9001 and similar standards, requires careful planning of activities, monitoring and measurement, and using the information gained from monitoring and measuring to make improvements — improvements that are aimed solely at the customer. Quality is about building long-term relationships — let’s keep customers coming back because the quality of our products and services can’t be matched.
Nowhere in ISO 9001 is the “shareholder” mentioned. There’s a very good reason for that. Shareholders are conditioned to look for short-term gains (i.e., “Is the stock price higher now than it was a month, a day, or an hour ago?”) When companies adopt the quality philosophy, they’re signaling that they’re “in it for the long haul”. They believe in consistency, reproducibility, reliability, and incremental improvement. They know perfection is impossible but they believe they can always be better than they were the day before, in some way.
That way of thinking doesn’t have to run counter to what shareholders need. You might think shareholders and investors would welcome the concept of quality improvement and all it embodies.
- Kucera, Danielle, “Amazon Tumbles After Sales Miss Estimates on Digital Media”, Bloomberg.com, 1 Feb 2012 – http://www.bloomberg.com/news/2012-01-31/amazon-s-sales-miss-estimates-profit-drops-as-expenses-surge-shares-drop.html.
- “Facebook’s Strategy to Monetize Users”, Bloomberg video, 1 Feb 2012 – http://www.bloomberg.com/video/85369080/.
- Martin, Roger, “Fixing the Game: Bubbles, Crashes, and What Capitalism Can Learn from the NFL”, Harvard Business School Press, 2011. ISBN-13 #978-1-4221-7164-6.
- Russolillo, Steven, “Facebook IPO: Should You Invest In It?”, WSJ Blogs, 1 Feb 2012 – http://blogs.wsj.com/marketbeat/2012/02/01/facebook-ipo-should-you-invest-in-it/.