Bundles and profits

sometimes you have to bundle different modules in order to deliver a good-enough product, it depends on technology and context, but those can change, the prodcut can be commoditised and a competitors can unbundle the product and compete on single modules. Where do the profits of integration go? Are they lost? Christensen states the law of conservation of attractive profits, under the new technology and market arrangements, opporutinity to re-intergate in contiguous modules of the value chain emerges and the profits will go to the new intergated product

So it is a cycle of bundling and unbundling with profits jumping from the bundled up to the unbundled and the the bundler again

There’s a business saying “In business, there are two ways to make money. You can bundle, or you can unbundle.”
– Jim Barksdale

“When attractive profits disappear at one stage in the value chain because a product becomes modular and commoditized, the opportunity to earn attractive profits with proprietary products will usually emerge at an adjacent stage. That is, the location in the value chain where attractive profits can be earned shifts in a predictable way over time.”

-Clayton Christensen

Jim Barksdale was Netscape CEO to the end, then secretly built the optic fiber cable linking Chicago to New York, shaving 3 millisecond in the transmission time, such a tiny speedup that only algorithimic traders could appreciate it. The way of market arbitrage are infinite, infinitely small


Attractive profits, complements and value stacks

Laws of Tech: Commoditize Your Complement from Joel Spolsky essay about tech companies keeping control of chocke point in the tech stack, and commoditize the djacent stacks as a way of preempting competition

rekated, I think, the law of attractive profits by Clayton Christensen that states “When attractive profits disappear at one stage in the value chain because a product becomes modular and commoditized, the opportunity to earn attractive profits with proprietary products will usually emerge at an adjacent stage.” HBR breaktru ideas of 2004 https://hbr.org/2004/02/breakthrough-ideas-for-2004

Chris Dixon on complements https://cdixon.org/2009/09/10/non-linearity-of-technology-adoption

christensen and spolsky really say the same thing but chosse to show the arrow of causation in different directions, C is worried how the managers of an incumbent company, the sort of company that does portfolio decisions within an estabilished business, can chase profits in other segment of the value chain once they are commoditizied. SPolsky speaks to startups which have doggedly built a business in one segment and need preventing competition, in an environent marked by disruption

shareholder value

investigating the mantra of management a cavallo of the last 2 centuries

it all started with this paper in 1976 Theory of the firm: Managerial behavior, agency costs and ownership structure

which welcomes the thesis expressed by Milton Friedman in 1970 in The Social Responsibility of Business Is to Increase Its Profits

(originally published in NYTimes https://www.nytimes.com/1970/09/13/archives/a-friedman-doctrine-the-social-responsibility-of-business-is-to.html)

It was 50 years from the day Friedman’s paper was published last september 2020, it took some time but by the early 80’s shareholder value took hold in the the corporate world, fuelled a rally in stocks and became one with the Reagan era

I started from here: https://www.nytimes.com/2020/09/11/business/dealbook/milton-friedman-doctrine-social-responsibility-of-business.html

and here: https://www.nytimes.com/2020/09/11/business/dealbook/milton-friedman-free-markets.html

Apple, Intel and disruption

per quanto si parli di #disruption l’ho vista citata poco a proposito del nuovo #MacBookPro, dove #Apple ha tirato fuori dal cilindro una vera disruption a la #Christensen

I nuovi MBP hanno oggi il processore M1, lo stesso degli iPhone. Il primo di Apple, architettura ARM prodotto nella fonderia TSMC con un processo a 5nm. Il processore di Apple è superiore a quanto prodotto da Intel nella sua architettura x86

Il premio della disruption è Apple che si riprende il mercato dei computer ? No, è il mondo mobile che fagocita il desktop e si prepara a conquistare il mercato server

il 30% dei possessori di MBP sono developers che, sviluppando su macchine native ARM non avranno problemi a sviluppare per server con processori ARM

Chips and disruption

Forget those abuser startupper who banter of disruption every 3 words. We just had the most classical, Christensen-approved, disruption and involved Apple and Intel, not pizza&figs

Apple ARM chip just got more powerful than Intel’s x86 and will zoonotically colonize the Mac Power Book. Chart from this intereseting medium on Intel and disruption https://jamesallworth.medium.com/intels-disruption-is-now-complete-d4fa771f0f2c

that could be read in the tea leaves, no, in the tech trajectories already long time ago, Daring Fireball did it in 2015 https://daringfireball.net/2015/11/the_ipad_pro

Truth be told, Christensen did (not) explain that to Grove in the late 90’s and Intel could pull the Celeron out of the magic cap and so avoid disruption then, Plan Maestro had the story in 2016 https://twitter.com/PlanMaestro/status/712103828426870784

Learning and experience curves

“The difference between learning curves and experience curves is that learning curves only consider time of production (only in terms of labour costs), while experience curve is a broader phenomenon related to the total output of any function such as manufacturing, marketing, or distribution”

looking for data of experience curves on Electrolysis I found this

on this paper on cost trajectories of main electricity storage technologies

this article states 20% learning rate per doubling of production, similar to wind https://about.bnef.com/blog/liebreich-separating-hype-from-hydrogen-part-one-the-supply-side/

a paper on learning in electrolysis for green hydrogen https://onlinelibrary.wiley.com/doi/10.1002/solr.202100487

scales of S-curves, network effects

This is a point Reid Hoffman makes in Blitzscaling: network effects are nice when a company grows, but they’re terrible when it’s subscale.

Marketplaces are so hard to get rolling that you should expect to take heroic measures at first. In Airbnb’s case, these consisted of going door to door in New York, recruiting new users and helping existing ones improve their listings.

mostly you have to choose the scale of your desired S-curve, where newtork effects can bu built, the egg and chicken death loop risolved with some affordable marketing effort

Groupon -> sign up merchants in a city and get user to signup with percks, cinema tickets in citydeal

These are basic concepts but nicely explained here Surfing the Right S-Curve

Tesla what s written in the numbers

current valuation might imply 30 to 50% market share in the future but let’s look at it like a tech and not a car company

sustainable advantage in batteries? It is claimed by Musk, is it real ?

Tesla is an operating system with around a car, car design turned upside down. Will it translate into a sustaiable advantage vs car producers?

Tesla first at autonomous drive with Autopilot, famously claimed in a keynote where Tusk promised your Tesla could work for you as a Taxi while you don’t use it

Imagine Tesla can pack all these unique features in a skateboard other producers can customize with fancy bodies. The skateboard is the operating system in a android-mobile phones analogy

There is a tech story that holds, but theere is also 3 checks to performs, answer the 3 questions, will Tesla really be able to be consistently ahead of all car makers in the world ? In the end, will it be economies of newtok and winner takeall like in software and social networks? Let’s see

Managerial concept I missed

the whale ! Customer Profitability Whale Curve https://demonstrations.wolfram.com/CustomerProfitabilityWithTheWhaleCurve/ (found on the Management Myth

Cash Conversion Cycle (negative for Apple) https://www.investopedia.com/terms/c/cashconversioncycle.asp#:~:text=The%20cash%20conversion%20cycle%20(CCC)%20is%20a%20metric%20that%20expresses,into%20cash%20flows%20from%20sales.

Trailing Free Cash Flow FCF


“Amazon is run for cash, not net income. Jeff Bezos always says that he runs it for ‘trailing 12 months’ absolute free cashflow’, not net income”

Apple, Windows, strategy and product development

Steve Sinofsky, lead at MS dev team for Apple software, knows both worlds well


commenting on Apple switch to own silicon in Macs, toos 2 years, it is at once a short time for such a deep change affecting the entire product ecosystem, very long one if you think indeed you are committing an entire ecosystem to it and for 2 years you keep going whatever will happen

“16/ To execute requires everything in the company to operate as though strategy matters most. It means communication. Performance reviews and rewards. It means management top down reinforces it and isn’t “random” or “inconsistent”. That is so difficult internally. Painful even.”

15/ It is incredibly clear that everyone at Apple puts strategy requirements above anything “local”. When you wonder why there isn’t more new in Notes or why Mail is missing stuff it’s because supporting a multi-year strategy trumps individual teams and that’s a good thing.