Newco Shift | Covering the biggest shift in business and society since the industrial revolution

Benioff: The Business of Business is Bettering the World

Marc Benioff finds a sweet spot for corporate idealism. Salesforce is set to announce a big new program called Einstein, aimed at infusing its entire line of business software tools with predictive artificial intelligence. That news tops Forbes’ cover story on Salesforce founder, CEO and force-of-nature Marc Benioff. But the most interesting angle is at the end, in a close look at the wide range of social, political, and philanthropic causes Benioff has energetically, and sometimes recklessly, embraced. For instance, he’s put his billionaire shoulders and company’s weight behind efforts to resist state laws that discriminate against gays. When female executives inside Salesforce pointed out gender-based pay imbalances there, he reviewed the data and adjusted salaries to redress the situation. “I strongly believe the business of a business is to improve the world,” he says. You don’t need an Einstein AI to predict that Benioff will continue to act on that belief — or to understand that it, as much as any technological insight or business savvy, is what lies behind his success.

Et tu, WhatsApp? When Jan Koum, founder of WhatsApp, sold it to Facebook in 2014 for $16 billion, users of the privacy-conscious messaging service feared that Facebook would start harvesting their data. Koum — an ardent defender of privacy and detester of advertising — assured the world that WhatsApp’s values would hold strong under its new ownership. Two years later, that assurance is beginning to break down, as WhatsApp has announced that it will share some user data with Facebook to help target ads to its users (The New York Times). But surely this change was predictable and inevitable. Could anyone believe Facebook wouldn’t try to monetize WhatsApp after spending that sort of dough? The lesson for founders, employees, and customers alike is simple: When one company sells out to another, you can safely ignore all the quotes about how nothing will change. In the long run, the buyer’s culture will always prevail — something to put in the scales in weighing any acquisition.

The Fortune 500’s Unicorn Hedge

By scott-rosenberg

How much is that unicorn in the window? Forget about fearing a tech bust, writes 500 Startups’ Dave McClure (Medium) — our next bubble trouble is likely to be in the world of old-line global public companies. These firms are only beginning to realize how thoroughly their universes are changing, and how that change could cut their value. So they’re adopting what McClure calls “the Unicorn Hedge” — the strategy of buying up and assimilating billion-dollar startups, their people and their ideas. The procession of these acquisitions — Unilever and Dollar Shave Club, Walmart and Jet, GM and Cruise — shows no sign of slowing down. What’s driving such deals? The hedge is an effort to buy a little piece of the future, in case these big companies’ stake in the present gets a sudden mark-down. (The accelerating tango between BigCos and NewCos is a focus of our upcoming NewCo Shift Forum in February.)

Fortune smiles on 50 big social-change innovators. Pharma heavyweight GlaxoSmithKline tops Fortune’s second annual “Change the World” list of 50 $1 billion-or-more revenue companies leading the charge in looking beyond a profit-only mindset. The magazine says “shared-value thinking” is going mainstream: BigCos are “moving beyond often-fuzzy notions like sustainability and corporate citizenship, and instead making measurable social impact central to how they compete.” Yes, they’re doing this without sacrificing “disproportionate shareholder returns.” And a lot of them are hiring. Fortune selects its list according to an impressive methodology, yet the rankings still seem a little opaque. The list is probably most useful simply as a compendium of the wide spectrum of approaches companies are adopting, from nonprofit partnerships to corporate governance remodels to clean-tech investments. What Fortune leaves out is a sense of the fertile interplay between these mega-companies and the nimble startups and NewCo ecosystems that so often introduce the innovations the giants run with. Oh, and of course, whatever those same giants might be doing that cancels out their well-intentioned efforts.

How to Think About Monopolies

By scott-rosenberg

The thousand faces of monopolies. Monopolies are villains because they charge “monopoly rents” — they can and often do hold purchasers hostage and jack up prices. To their owners and investors, however, monopolies can also be heroes — they make people rich (as Peter Thiel reminds us). How many of the tech-driven, city-based institutions now being built by NewCos will end up as monopolies? And should we be rooting for that — or trying to shape the rules of the game to encourage competition? For an overview of that issue, see this collection of long-form links (Redef). In the age of hyper-competitive market-winners like Amazon and sharp-elbowed platforms like Uber, antitrust law might well be outdated and ineffective. But if we want to let a thousand Ubers bloom (City Observatory), a few strategic market interventions could make all the difference. When Uber made good on its threat to pull out of Austin after the city passed regulations the company opposed, customers were upset and inconvenienced in the short run. But now, Austin has become a lab for Uber alternatives. We can’t stop innovative companies from winning new monopolies, but we can try to stop them from squashing the next round of innovation.

The rent is too damn low. Traditionally, rent is the price the owner of some scarce asset — land, an apartment, or a service no one else can provide — charges others to use the asset. But there are more creative ways of thinking about rent: You can take some commonly-owned resource, raise its price, and share the resulting income widely — as Alaska did with its oil reserves. Peter Barnes call this “virtuous rent,” and it has applications beyond public lands and natural resources. You can also imagine charging it for collectively owned digital abstractions like namespaces and other kinds of virtual real estate and goods.

Business is a game with rules, not immutable laws

By scott-rosenberg

We set the rules of business’s game. We can change them. As new tech and new ideas restructure our economic world, Tim O’Reilly writes, we shouldn’t just sit back and assume that the “laws of economics” will assure an optimal outcome for all. For example: Uber has designed an amazing new transportation system around the needs of consumers, business, and investors — but by failing to take into account the needs of its drivers, it’s not only making their lives harder, it’s assuring backlash down the road. The Uber world needs, among other things, drivers who can deliver good rides, and it’s not going to get them unless it treats them fairly, as stakeholders. Systems that assume humans are expendable can’t succeed in the long run: that’s a “failed rule.”

Court to FCC: If states block public internet access, you can’t stop them. A federal appeals court has just made it a lot harder for cities trying to promote municipal broadband alternatives to the cable monopolies (Washington Post). The Federal Communications Commission has tried to give these public-sector options a chance, but many states have passed laws to hold them in check, and now the courts say the states, and not the FCC, should call the shots. The ruling is more about arcane principles of federalism than the practical needs of internet users. But that won’t help people still waiting for faster speeds and better service. The FCC can still appeal the decision (Ars Technica).

Shorter Runways For Startups = Opportunities for BigCos

By scott-rosenberg

Deal frenzy means investors are holding back. Walmart’s acquisition of Jet.com — like Unilever’s purchase of Dollar Shave Club, and Uber’s sale of its China arm to Didi Chuxing — can be read as a sign of just how much scarcer venture capital has recently become (Wall Street Journal). Each of these operations was burning through cash, and each decided not to stick it out. Of course, the VC business is notoriously cyclical — no need to let the sound of its gears get too distracting. For anyone building a mission-driven company, the lesson here is about control. Selling to a bigger player can reward investors and employees and tack a tidy ending on a startup story. But once you hand the keys over to a new owner, the organization may wind up at a very different destination than its inspiring mission statement once mapped. Then again, big companies are getting religion around new ways to go to market — and so far this year they’re willing to pay for that privilege. Is this the start of a NewCo-BigCo trend?

Think tanks in the tank for funders. The next time you read a report from a big-name research mill, you might want to ask who paid for it. This week a New York Times series is going deep on just how broadly corporate money is shaping the studies that get published and the recommendations that get made under the esteemed scholarly logos of big think tanks. One story describes how Brookings took cash from a developer while it was promoting the company’s big San Francisco redevelopment project; another chronicles the work of an American Enterprise Institute scholar who received consulting fees from Verizon while he campaigned against net neutrality rules. These investigations aim to get your hackles up, and they should. But let’s pause before we all start chanting “Get corporate money out of our research!” We need more data, studies, and scholars taking on our intractable social problems and political logjams. If the private sector wants to pay, why not take the money — and for each new project, report where every dollar comes from? Instead of throwing out this research, let’s use real transparency to assess it, and then put it to work.

Walmart buys a Jet pack

By scott-rosenberg

E-commerce turbo-boost. It’s official — the world’s largest retailer is going to buy e-commerce startup Jet.com for $3 billion (Recode). A move against the Amazon threat, as most media reports argue? Sure — but more importantly, a broader acknowledgment that even the biggest and most efficient company today can’t figure out the future by itself. It’s hard to look around corners when you own the whole street. Walmart rose to its retail dominance by inventing new distribution and pricing systems, but like most industry leaders, it came to face the innovator’s dilemma. Jet offers Walmart some novel algorithmic low-pricing techniques, as well as some startup-speed talent. But history suggests it might take more than an acquisition for Walmart to stay on top. Meanwhile, Jet’s team took only two years to grow to triple-unicorn value by reliably delivering low prices online. (The Walmart-Jet deal is exactly the kind of BigCo-NewCo cross-fertilization that the NewCo Shift Forum event next February is all about.)

Economy stuck in low-grow land. Forget market swings and mega-deals for a second and zoom out to fundamentals: What you see is a new economic normal of low inflation, low unemployment, low interest rates — and low growth. How’d that happen (New York Times)? The gap between long-term U.S. growth of 2 percent (the late 20th-century average) and the 1 percent typical since 2000 explains a lot of today’s news, including the stubborn persistence of inequality and the rise of populist anger. Is our economy “fundamentally broken”? Or did recent generations just experience a one-time boom, and then overestimate how cool new tech would keep it going? Of course, we could be measuring “growth” all wrong (see: GDP). Or we could be in for a rough century. No one’s suggesting a quick fix, but a big spend on infrastructure looks promising to leaders across the political spectrum.

Fail Fast, Not Over Decades: Kodak CEO Jeff Clarke on The Biggest Turnaround of His Career

By John Battelle

If you’re of a certain age, the Kodak name evinces a simpler era — a time when taking a picture was a revelation, and photographs were precious — each exposure was finite, a “roll of film” only offered 24 or 36 shots, and it cost money (and time) to actually see your work developed. Selfies? Who had time for selfies?!

During that era, Kodak was Instagram, Apple, and Sony all rolled into one, a massive, 140,000-person icon of American capitalism. The company’s market cap peaked at $30 billion — huge for its time. But the relentless advances of digital drove Kodak to a humiliating bankruptcy in 2012, one that became emblematic of how large companies can fail to innovate.

Public services ride the bottom line down

By scott-rosenberg

When Wall Street is at the wheel of your ambulance. Private equity firms — the investors formerly known as “corporate raiders” — are operating ever bigger chunks of what we used to call the public sector, shaping our daily lives (New York Times/Dealbook). There’s a logic behind handing emergency services, transportation infrastructure, housing, or utilities to efficiency-minded investment groups: Theoretically, hard-nosed management can squeeze waste out of public services, striking a better deal for local governments. But these companies specialize in “cost cuts, price increases, lobbying and litigation” — so don’t be surprised when their touch turns out to be rough. Maybe there was a point to hanging a big “public” sign over part of the economy?

Airbnb, community disorganizer. When you take a hot neighborhood and turn chunks of its housing into Airbnb rentals, hosts can make money, economists cheer the efficient resource use, and travelers enjoy a quirkier-than-Marriott experience. But turn enough homes into short-term rentals, and that unique neighborhood could lose its character or even disintegrate (Next City). That’s why it makes sense to think twice before swapping too many full-time residents for drop-ins: Community isn’t community when the members are all gone.

The Ten Types of Corporate Innovation Programs

By jeremiah-owyang

Large, established companies are trying on various programs to foster new innovations in an attempt to find the best way to change course for their big ships.

These established companies are struggling to keep up with fast-paced, venture-backed startups that are changing customer expectations — and often causing business model disruption for traditional businesses. To combat this ever-growing threat, corporations are stepping up their investments in innovation, and deploying a variety of strategies, outlined below.

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