Exaggerated pressure from investors threatens large products

date
Jul 2, 2014
slug
2014-exaggerated-pressure-from-investors-threatens-large-products
status
Published
tags
profit
products
market
technology
growth
summary
Excessive investor pressure jeopardizes successful product development and innovation in the face of unrealistic growth expectations.
type
Post
A good idea doesn't always turn into a good product. Indeed, the seeds of good products most often end up amounting to nothing. Timing, investment, good sense, and hard work are behind any success in any industry. When a great product surfaces and manages to keep its head above water, a great combination of factors has occurred. Thus, if an economy doesn't mind sacrificing the existence of these phenomena for the sake of immediate higher profit, it has something fundamentally distorted, because the economy is an institution of society and must serve it to some extent. And, it should be said, the economy has something fundamentally distorted. (Author's note 10 years later: among the products that succeed, the crucial factor is the ability of the person who launched it to distort the market, prevent competition, do dumping to kill threats and ensure the lowest possible price by manufacturing with semi-slave labor).
An editorial from a conservative publication would say that there's nothing wrong with the market (and investors) pushing for more profit. Theoretically, this pressure would never be great enough to kill the product or business, because in theory this would mean losing money. But reality only knows theory in passing. 21st-century capitalism presses for profits indefinitely because capital volatility allows you to stay in the boat until the last second. Like in a classic scene from the movie Margin Call, when the president of an investment fund is informed that his company will go bankrupt due to bad titles, he says, “I'm paid to say how the music will be playing a day, a week, a year from now. And now, I only hear silence”. And then, he orders the sale of tens of billions of dollars of these titles (the episode is real and caused the 2008 crisis).
The situation is not as dramatic as the plot of Margin Call (based on the story of how Lehman Brothers dragged the economy into the mud) - far from it. But the quarterly reports of publicly traded companies continue to make victims in product departments due to the financial demands their shareholders demand. The drop of more than 20% in Twitter's stock price due to a growth of "only" 4% in its number of users in the fourth quarter of 2013 is a sign of how every product is expected to grow eternally and infinitely, but in reality, each one of them has to respect its own nature, and not disfigure itself to meet unreal demands. More and more, products in technology will meet niches- niches that can have hundreds of millions of people - but still, niches.
Even though it is necessary to leave naivety aside - because shareholders have always wanted and will continue to want profits - there are pertinent considerations. Is it worth squeezing a product to increase its revenue immediately even if this puts the future of the company at risk? Ignoring the mood of the users/customers of a service is it really smart in a time when competing products emerge overnight (see Snapchat x Facebook)? Is it really impossible to think of a model in which immediate profit can be set aside for a higher return in the medium term? In today's world, the answer is yes, it is worth squeezing the product and to hell with the future. But this reality will change for better or worse, because good products will meet the needs of this increasingly volatile consumer.
In an ideal market, as defended by the hypothetical conservative publication, freedom of movement and the number of options in a given sector are total. In other words, you can go from anywhere to anywhere whenever you want because there will always be competitors to your current service provider to offer you shelter with a valid alternative. In the case of technology products, the trend is for this freedom to increase among the major competitors, making the dispute increasingly fierce and companies and products that bet on monopolies will lose in the long run (see IBM and Microsoft, to name two).
The progressions of rules like Moore's Law and the Carlson Curve point to increasing volatility in technology markets in terms of new participants - hence the exponential spread of start-ups in countries that do not have oligo-state capitalisms like Brazil. This should serve as a warning to platforms like Twitter and Facebook, currently absolute owners of the digital ecosystem in terms of user experience. The market, schizophrenic as it is, demands capital gains that go well beyond reasonable for a society that is beginning to realize that the planet cannot keep up with double-digit economic growth. Just like the economy, products have stress limits and hardly manage to regain ground that may be lost.
Invariably, the points sacrificed for the sake of immediate revenue increase are those linked to innovation. Investors tend to be conservative when their investments are already making money and innovation has a large component of uncertainty. The problem is that the combination is almost forcibly a purge of users over a large enough time curve, as long as new competitors present themselves as an option, a condition that tends to become increasingly permanent. Cases like MySpace's, which went from niche leader to digital corpse, will have to repeat themselves more and more so that the market understands this structural demand of technology products.

© Cassiano Gobbet 2023 - 2024