Companies are established to fix market frictions, not to unveil new technologies. The most catalytic innovations happen at business models, not necessarily at the tech stack. Innovators, spend time evaluating your business model and do not think tech can unlock opportunities which your business models cannot capture.
The biggest innovation in Tesla is the pricing model and that is the reason Wall Street gives it multiples than other car companies. Yes, even if you take all the cars in Tesla and give them to Toyota, without the SaaS-like business model, nothing will change in Toyota.
IBM got about 9,130 patents in 2020 while Apple received 2,791. IBM is worth $128 billion but Apple hits $2.36 trillion. IBM runs an industrial age business which does not benefit from the compounding acceleration of returns which digital aggregation has unleashed in our world, via a near zero marginal cost. Apple, Facebook, Amazon, Google, Microsoft, Alibaba, Tencent, etc are united by one thing: DNA of aggregation in some key products.
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So, if you do not have the right model, technology will not change the outcome. The solution is not more tech, but a better business model.
More so I am not sure your economics textbook has been updated with Aggregation Construct and that is why you may need to update.
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Comment #1: Value creation, delivery and capturing, the trio holds everything on business model.
Now it’s not enough to be making money, but rather how you make it, the latter is what places premium on what you do.
Comment #2: Good thought-provoking piece there. I am in agreement with all that has been said so far except for paragraph 3. IBM ACTUALLY runs an industrial age business that DOES BENEFIT from the compounding acceleration of returns that digital aggregation has unleashed in our world. The issue is more of consumerism (the preoccupation of society with the acquisition of consumer goods). Every year, Apple releases the same product with minute feature change at higher prices, status based class-driven lifestyle product, like a commodity. IBM products have a smaller market audience and an expectation of at minimum 4 to 10 years lifespan before a refresh by the customer can occur. We can’t compare both companies at all, they do not serve the same target market or audience. One is end-user computing, while the other is infrastructure computing. However, the piece is totally thought-provoking and a good read.
My response: IBM makes hardware like Tesla but Tesla runs a better business model. Tesla is the 6th most valued company in America. Do not think the problem with IBM is its market. The challenge is that its business model is bad. Sure, the new guy is updating it. Apple was trapped in the iPhone until it stopped reporting its numbers and upgraded its playbook, unlocking massive opportunities.
Comment #3: Ndubuisi Ekekwe ; correct me if I’m wrong Sir, I’ve noticed that you are more impressed by companies whose business model make bigger guarateed returns than companies whose value creation might not be big on financial returns. Which is a capitalist mindset I’ll say. I think it is time to start seeing business operations from the point of greater societal impact with moderate returns. Apple’s playbook is annoying I’ll say, it runs purely on rich folks insatiable hunger for items of ostentation. I have more respect for Tesla I’ll say!!!!
My Response: :Sir, I’ve noticed that you are more impressed by companies whose business model make bigger guarateed returns than companies whose value creation might not be big on financial returns.” – Tesla makes 500k cars in a year and is valued about $750 billion while Toyota makes 10.5 million and is worth less than $300 billion. Toyota brings a revenue of $275 billion while Tesla is about $31B. Toyota made a profit of $20B while Tesla $721 million.
So, your statement is not correct because across most indicators Toyota generated more $$ but I still liked Tesla. Where Tesla did better is valuation, not because of financials on $$ on business model. Any car sold by Tesla today can be earning revenue till it stops being on the road. Toyota, that is not possible. That makes Tesla a software company!
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