Today, there’s endless debate on how we engage in this digital age. By and large technology is a positive force in the world, but it’s not always that easy to determine which companies sit on which side of the value spectrum.
Technology’s purpose is to save time. That’s my basic belief. Whether this purpose is achieved determines a successful company versus one that fails.
Take any technological advancement: Microwave? Heat food faster and more efficiently. iPhone? Access information and services at your fingertips. Henry Ford’s assembly line? Greater production numbers. Hyperloop? Blazing next-gen travel.
The most powerful technology companies in the world today accomplished something similar. Network effects afforded by the Internet not only propelled some of these companies to hundreds of billions of dollars in market value, but also resulted in giving them virtually limitless access to data and capital.
Investors and analysts constantly focus on three central questions in assessing the risks faced by technology companies. The first question is whether displacement can occur from unforeseen competition; secondly, will adverse regulatory policies be enacted; and third, is the economic profile sustainable? What I have realized from my time as a Wall Street analyst is that if the time benefits are not central to a company’s core mission, that’s probably where the greatest risk lies.
Of the five largest US-based technology companies – Apple, Amazon, Microsoft, Google, Facebook – it can be argued only three–Apple, Amazon and Microsoft– achieve this mission of efficiency. The other two–Facebook and Google–may in fact do quite the opposite.
In fairness, a lot of good has come from these companies through the aggregation of networks and the distribution of information. What matters most for the next phase is how well the internal incentives today align with the mission of time savings. Executing on this long-term objective, however, proves challenging when founders maintain complete voting control over other shareholders and investment performance is evaluated through a myopic lens.
If the purpose of technology is to save time, Facebook and Google usurp time.
In effect, Facebook and Google are aiming to transfer time from the end user to the company when they are maximizing engagement, which in turn leads to profit. But by doing so, they turn the marginal utility of their products negative. And that yields business risk, since the purpose of the platform diverts from the essential purpose of technology: speed and efficiency.
Explicit and implicit risks arise when the business strategy and technology’s purpose diverge. This is particularly true for advertising platforms. For Facebook and Google, explicit risk factors include inordinate user time spent on Instagram or YouTube, but there’s also implicit and more nuanced risks associated with the public’s view about media freedom, freedom of speech, censorship, security, and privacy. Should the organization of information become less efficient (i.e. less relevant), the byproduct is the company capture of time from the user.
What Facebook and Google face today is a difficult dynamic with no simple solution. Evaluating technology businesses in the context of time, though, is a useful approach for foreseeing and understanding shifts in company strategy, in the impact of regulatory action, and assessing valuation.
James Cakmak is the Co-Founder of Snailz, the nail salon booking app. Previously, he was a Wall Street security analyst for over 10 years covering the Internet sector. Follow him on Twitter: @JamesCakmak
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