Friday 25 June 2010
Wednesday 23 June 2010
A Life or Death Match....
I was talking to my editor Martin Fletcher at Headline yesterday about the next book in the ‘Death Force’ series, which is going to be called ‘Ice Force’. The outline is looking great. But we were discussing whether one of the character should die, as they have done in each of the previous three books in the series.
We decided one should.
But who?
We picked a pair of characters, and decided to kill off one if England beat Slovenia today. And another if they get beaten.
So it really is a life or death match.
We decided one should.
But who?
We picked a pair of characters, and decided to kill off one if England beat Slovenia today. And another if they get beaten.
So it really is a life or death match.
Monday 21 June 2010
Standing Up For British Business...
In my Money Week Column this week, I've been arguing that the British government needs to start learning how to stand up for British business. Here's a taster....
The rhetoric has been disgraceful. Over the last month, as oil spilled out into the Gulf of Mexico, President Barack Obama has been harassing and condemning BP as if the oil company had planned the spill from the start. The U.S.’s own role in creating the crisis – by completely refusing to control its own oil consumption, and by insisting that more of its energy is supplied from within its own territory – has been glossed over in a series of anti-foreigner tirades.
But the response hasn’t been much better. The Prime Minister David Cameron and the Foreign Secretary William Hague, have been about as firm as a lettuce caught in a thunderstorm.
In reality, the British government has completely forgotten how to stand up for British business. BP is the latest, and most glaring example, but it is far from the only one. Shell was treated disgracefully over its oil interests in Russia. Mining conglomerates such as RTZ are being picked on by the Australian government. Cadbury received precious little support when it was targeted for a hostile bid by Kraft. No one believes the UK has to embark on a French-style policy of economic nationalism. But it is worth recognizing that business and politics are increasingly intertwined. And the new coalition government should start re-learning the art of quietly helping this country’s companies.
BP hasn’t been called British Petroleum for years, but you wouldn’t know that from listening to Obama’s rhetoric over the past month. Of course, the spill in the Gulf of Mexico was a terrible accident, and the damage to the Gulf coastline a tragedy.
But it absurd to pin all the blame for this on BP, and it is deceitful to pretend that it is the fault of a foreign-owned company (particularly when BP happens to have as many American shareholders as it does British ones). In two respects, US policy is directly to blame. The Americans remain by far the largest oil consumers on the planet, both in total quantities and per capita – in case you were wondering, the US consumes 20 million barrels of oil a day, compared with the next biggest consumer, China, which manages to get by on 7.5 million barrels. On top of that, US policy in the last five years has been to source more of its oil from its own territory, rather than shipping the stuff in from countries that are a long way away, and which it doesn’t like very much.
If you want vast quantities of oil, and you want it from US territory, there is no point in complaining when the energy companies start drilling for the stuff in more and more environmentally sensitive areas. BP’s contractors shouldn’t have allowed the oil to spill. But it was the Americans who wanted them to drill there in the first place.
The British government, however, hasn’t been making those arguments. Nor, over the most of the last decade, has it been prepared to stand up for British companies.
The Anglo-Dutch oil giant Shell was largely driven out of its investments in the Russian energy industry by that country’s government, which was determine to re-claim control of the oil industry. Did the British government have anything to say about it? Not a word. The Australian government is proposing a punitive new tax on mining companies, which will hit hard British-based companies such as RTZ and Anglo-American. Has the UK protested about that? If so, not in public. When Cadbury was attempting to fend off the hostile bid from Kraft, the best the British government could manage was a few limp words from the them Industry minister Peter Mandelson. Why not call together the leading shareholders, and remind them that if this wasn’t a British company worth backing then it was hard to know what was? But it couldn’t even stop the state-owned Royal Bank of Scotland from lending money to Kraft. Crazy.
French-style national champions wouldn’t work in the UK. We don’t have the kind of industrial-financial elite that moves seamlessly between government and big business. But it is hard to imagine that France’s President, Nicolas Sarkozy, or the German Chancellor Angela Merkel would stand idly by and watch French or German companies get pushed around like that without having anything to say about it.
One problem, particularly with the last Labour government, was a cultural cringe. A generation of left-wing politicians felt uncomfortable with anything to do with big business. And they felt equally uncomfortable supporting anything with the word ‘British’ attached to it. Backing FTSE companies simply wasn’t the kind of thing they did.
Another issue was the divorce between big business and politics. Most of the political class are now full-time, career policy-makers. They move from university to research jobs, to Parliament, and then into government. Very few have had any experience of industry, or how tough it can be. They don’t know how industry works, or how government can help. That is as true of the Conservative Party as it is of Labour.
And yet, in reality, business is getting more and more political. Environmental pressures mean that in the developed markets, companies are likely to have to face more regulations, more legal fights, and more lobbying from campaign groups and governments. In the emerging markets, where just about all the growth will come from over the next decade, the boundaries between government and industry are wafer-thin. Sometimes they hardly exist at all.
British businesses deserve more help and support from the government. BP would be a good place to start. But regardless of what happens to the oil company over the next few weeks, the government should start re-learning the skill of getting behind British industry – because without strong, global companies, there is very little chance of the economy every recovering.
The rhetoric has been disgraceful. Over the last month, as oil spilled out into the Gulf of Mexico, President Barack Obama has been harassing and condemning BP as if the oil company had planned the spill from the start. The U.S.’s own role in creating the crisis – by completely refusing to control its own oil consumption, and by insisting that more of its energy is supplied from within its own territory – has been glossed over in a series of anti-foreigner tirades.
But the response hasn’t been much better. The Prime Minister David Cameron and the Foreign Secretary William Hague, have been about as firm as a lettuce caught in a thunderstorm.
In reality, the British government has completely forgotten how to stand up for British business. BP is the latest, and most glaring example, but it is far from the only one. Shell was treated disgracefully over its oil interests in Russia. Mining conglomerates such as RTZ are being picked on by the Australian government. Cadbury received precious little support when it was targeted for a hostile bid by Kraft. No one believes the UK has to embark on a French-style policy of economic nationalism. But it is worth recognizing that business and politics are increasingly intertwined. And the new coalition government should start re-learning the art of quietly helping this country’s companies.
BP hasn’t been called British Petroleum for years, but you wouldn’t know that from listening to Obama’s rhetoric over the past month. Of course, the spill in the Gulf of Mexico was a terrible accident, and the damage to the Gulf coastline a tragedy.
But it absurd to pin all the blame for this on BP, and it is deceitful to pretend that it is the fault of a foreign-owned company (particularly when BP happens to have as many American shareholders as it does British ones). In two respects, US policy is directly to blame. The Americans remain by far the largest oil consumers on the planet, both in total quantities and per capita – in case you were wondering, the US consumes 20 million barrels of oil a day, compared with the next biggest consumer, China, which manages to get by on 7.5 million barrels. On top of that, US policy in the last five years has been to source more of its oil from its own territory, rather than shipping the stuff in from countries that are a long way away, and which it doesn’t like very much.
If you want vast quantities of oil, and you want it from US territory, there is no point in complaining when the energy companies start drilling for the stuff in more and more environmentally sensitive areas. BP’s contractors shouldn’t have allowed the oil to spill. But it was the Americans who wanted them to drill there in the first place.
The British government, however, hasn’t been making those arguments. Nor, over the most of the last decade, has it been prepared to stand up for British companies.
The Anglo-Dutch oil giant Shell was largely driven out of its investments in the Russian energy industry by that country’s government, which was determine to re-claim control of the oil industry. Did the British government have anything to say about it? Not a word. The Australian government is proposing a punitive new tax on mining companies, which will hit hard British-based companies such as RTZ and Anglo-American. Has the UK protested about that? If so, not in public. When Cadbury was attempting to fend off the hostile bid from Kraft, the best the British government could manage was a few limp words from the them Industry minister Peter Mandelson. Why not call together the leading shareholders, and remind them that if this wasn’t a British company worth backing then it was hard to know what was? But it couldn’t even stop the state-owned Royal Bank of Scotland from lending money to Kraft. Crazy.
French-style national champions wouldn’t work in the UK. We don’t have the kind of industrial-financial elite that moves seamlessly between government and big business. But it is hard to imagine that France’s President, Nicolas Sarkozy, or the German Chancellor Angela Merkel would stand idly by and watch French or German companies get pushed around like that without having anything to say about it.
One problem, particularly with the last Labour government, was a cultural cringe. A generation of left-wing politicians felt uncomfortable with anything to do with big business. And they felt equally uncomfortable supporting anything with the word ‘British’ attached to it. Backing FTSE companies simply wasn’t the kind of thing they did.
Another issue was the divorce between big business and politics. Most of the political class are now full-time, career policy-makers. They move from university to research jobs, to Parliament, and then into government. Very few have had any experience of industry, or how tough it can be. They don’t know how industry works, or how government can help. That is as true of the Conservative Party as it is of Labour.
And yet, in reality, business is getting more and more political. Environmental pressures mean that in the developed markets, companies are likely to have to face more regulations, more legal fights, and more lobbying from campaign groups and governments. In the emerging markets, where just about all the growth will come from over the next decade, the boundaries between government and industry are wafer-thin. Sometimes they hardly exist at all.
British businesses deserve more help and support from the government. BP would be a good place to start. But regardless of what happens to the oil company over the next few weeks, the government should start re-learning the skill of getting behind British industry – because without strong, global companies, there is very little chance of the economy every recovering.
Thursday 17 June 2010
Fire Force In The Charts....
'Fire Force' has made The Bookseller's Accelerator's Chart this week.....
Monday 14 June 2010
How To Break-Up The Euro....
In my Money Week column this week, I've been looking at how to break up the euro. Here's a taster....
There are two interesting questions to be asked about the euro right now. Does it have any chance of surviving in its current form? And, if not, how would you go about breaking up the single currency?
The euro can collapse in two ways. It can fall apart suddenly, overnight, in a chaotic scramble in which every country looks after itself. Or it can be split up in an orderly, organised way, in which the currency is slowly laid to rest, with the minimum possible disruption to the euro area’s economy. How? There are three ways. Germany could leave. You could create two euros, one for northern and one for southern Europe. Or, indeed, you could go back to the British proposal of the 1990s and have competing, parallel national currencies that would trade alongside the euro.
True, the euro might stagger on. It is too early to condemn the single currency to the lengthy list of failed monetary experiments. A sharp drop in the currency – and the markets are certainly doing their best at the moment to make sure that happens – might help the struggling, highly indebted members steady their economies for long enough to get their public finances back under control. The Germans might give up the habits of a generation and start spending rather than saving – and spend mostly on Greek and Spanish exports.
Who knows, miracles do happen – just not very often.
In reality, however, the experiment in joining Europe’s currencies together now looks doomed to failure. A system in which countries spend like crazy, run up massive public sector deficits, and then get someone else to pay the bill is plainly bonkers. The incentives are all wrong. Everyone has an interest in doing the crazy spending. No one has any incentive to do the bailing-out.
The euro could only work if you had strict limits on what governments could spend. The founders recognized that, and built it into the rules, but no one tried to enforce them. It is too late to fix that now. It is far better to recognize that, and think hard about breaking the currency up.
A chaotic, disorderly collapse wouldn’t help anyone. Greece could default, swiftly followed by Spain and Portugal. But terrible damage would be inflicted on the banks that were carrying their bonds on their books. The Germans could switch back to the deutschemark overnight – and the markets last month were briefly rocked by a conspiracy website that claimed to have pictures taken by a Deutsche Bank employee of the new German banknotes that had been secretly printed over a bank holiday weekend. But, either way, the markets would plunge. The impact on stock and bond prices would be finished, and could easily tip an already fragile global economy back into recession.
If the euro is finished, it would be far better to make sure it was quietly put to rest. So what are the options? Here are three to be thinking about.
First, Germany leaves. This option has been widely discussed in the markets ever since Morgan Stanley published a note on the possibility three months ago. It makes a lot of sense. One of the key problems with the euro is the overwhelming strength of the German economy compared with its neighbours. It is very hard for one of the weaker countries to leave to currency. All their debts are denominated in euros. If their currency collapsed, as it surely would, those debts would soar even higher. Capital would flee the country: in Greece, it already has. But Germany would have none of those problems. With its huge trade surplus and limited debts, it has one of the strongest balance sheets of any major country. Its new currency would soar in value. Investors would flock to it. Meanwhile, the euro-minus-Germany would sink sharply, as investors rightly worried who was going to pay all the bills. That would make it a lot easier for the highly-indebted countries to export their way out of trouble.
Second, create two euros, one for northern Europe, and one for southern. The key problem with the euro, as plenty of analysts have pointed out, is that it is not a natural currency area. The economies that make it up are too different. When the euro was launched, it was thought that sharing a currency would draw them together, but there has been very little sign of that happening. If anything, they have sailed even further apart. The solution? Create two euros. One would include Germany, France, the Benelux countries, Finland and Austria. The other would include Italy, Greece, Spain, Portugal, Cyprus and Malta. A few nations might be hard to place: Ireland, Slovenia and Slovakia don’t fit obviously into either camp. But they could be offered a choice. The southern currency would depreciate sharply against the northern, but otherwise all the advantages of having a currency that straddles several countries could be maintained. The two new currency areas, however, would be far more natural than the single old one.
Three, create parallel national currencies. When the euro was being debated in the 1990s, the British floated the idea of parallel currencies. You’d have the euro, and national currencies, and both would be accepted as legal tender in each of the member sates of the European Union. Companies and individuals could chose which currency they wanted to strike a deal in. Countries would get back most of the advantages of having their own currencies. They could devalue when they wanted to. But the euro would survive. Initially it would mainly be a currency for big business, the capital markets, and for tourists. But if the euro area economies did finally converge, the euro might gradually push out national currencies. The difference would be that it would happen naturally, when the market was ready, rather than being forced on economies that couldn’t cope.
None of the options, naturally enough, is painless. Each would involve sacrifices. But any of them would be preferable to letting the euro collapse amid chaos.
There are two interesting questions to be asked about the euro right now. Does it have any chance of surviving in its current form? And, if not, how would you go about breaking up the single currency?
The euro can collapse in two ways. It can fall apart suddenly, overnight, in a chaotic scramble in which every country looks after itself. Or it can be split up in an orderly, organised way, in which the currency is slowly laid to rest, with the minimum possible disruption to the euro area’s economy. How? There are three ways. Germany could leave. You could create two euros, one for northern and one for southern Europe. Or, indeed, you could go back to the British proposal of the 1990s and have competing, parallel national currencies that would trade alongside the euro.
True, the euro might stagger on. It is too early to condemn the single currency to the lengthy list of failed monetary experiments. A sharp drop in the currency – and the markets are certainly doing their best at the moment to make sure that happens – might help the struggling, highly indebted members steady their economies for long enough to get their public finances back under control. The Germans might give up the habits of a generation and start spending rather than saving – and spend mostly on Greek and Spanish exports.
Who knows, miracles do happen – just not very often.
In reality, however, the experiment in joining Europe’s currencies together now looks doomed to failure. A system in which countries spend like crazy, run up massive public sector deficits, and then get someone else to pay the bill is plainly bonkers. The incentives are all wrong. Everyone has an interest in doing the crazy spending. No one has any incentive to do the bailing-out.
The euro could only work if you had strict limits on what governments could spend. The founders recognized that, and built it into the rules, but no one tried to enforce them. It is too late to fix that now. It is far better to recognize that, and think hard about breaking the currency up.
A chaotic, disorderly collapse wouldn’t help anyone. Greece could default, swiftly followed by Spain and Portugal. But terrible damage would be inflicted on the banks that were carrying their bonds on their books. The Germans could switch back to the deutschemark overnight – and the markets last month were briefly rocked by a conspiracy website that claimed to have pictures taken by a Deutsche Bank employee of the new German banknotes that had been secretly printed over a bank holiday weekend. But, either way, the markets would plunge. The impact on stock and bond prices would be finished, and could easily tip an already fragile global economy back into recession.
If the euro is finished, it would be far better to make sure it was quietly put to rest. So what are the options? Here are three to be thinking about.
First, Germany leaves. This option has been widely discussed in the markets ever since Morgan Stanley published a note on the possibility three months ago. It makes a lot of sense. One of the key problems with the euro is the overwhelming strength of the German economy compared with its neighbours. It is very hard for one of the weaker countries to leave to currency. All their debts are denominated in euros. If their currency collapsed, as it surely would, those debts would soar even higher. Capital would flee the country: in Greece, it already has. But Germany would have none of those problems. With its huge trade surplus and limited debts, it has one of the strongest balance sheets of any major country. Its new currency would soar in value. Investors would flock to it. Meanwhile, the euro-minus-Germany would sink sharply, as investors rightly worried who was going to pay all the bills. That would make it a lot easier for the highly-indebted countries to export their way out of trouble.
Second, create two euros, one for northern Europe, and one for southern. The key problem with the euro, as plenty of analysts have pointed out, is that it is not a natural currency area. The economies that make it up are too different. When the euro was launched, it was thought that sharing a currency would draw them together, but there has been very little sign of that happening. If anything, they have sailed even further apart. The solution? Create two euros. One would include Germany, France, the Benelux countries, Finland and Austria. The other would include Italy, Greece, Spain, Portugal, Cyprus and Malta. A few nations might be hard to place: Ireland, Slovenia and Slovakia don’t fit obviously into either camp. But they could be offered a choice. The southern currency would depreciate sharply against the northern, but otherwise all the advantages of having a currency that straddles several countries could be maintained. The two new currency areas, however, would be far more natural than the single old one.
Three, create parallel national currencies. When the euro was being debated in the 1990s, the British floated the idea of parallel currencies. You’d have the euro, and national currencies, and both would be accepted as legal tender in each of the member sates of the European Union. Companies and individuals could chose which currency they wanted to strike a deal in. Countries would get back most of the advantages of having their own currencies. They could devalue when they wanted to. But the euro would survive. Initially it would mainly be a currency for big business, the capital markets, and for tourists. But if the euro area economies did finally converge, the euro might gradually push out national currencies. The difference would be that it would happen naturally, when the market was ready, rather than being forced on economies that couldn’t cope.
None of the options, naturally enough, is painless. Each would involve sacrifices. But any of them would be preferable to letting the euro collapse amid chaos.
Tuesday 8 June 2010
Fire Force in Tesco...
'Fire Force' makes its debut in Tesco this week. It is up there with James Patterson, Maeve Binchy, Ant & Dec, and Clive Cussler. Fame at last....
Monday 7 June 2010
Apple Overtake Microsoft....
In my Money Week column this week, I've been looking at how Apple overtook Microsoft. Here's a taster....
For all the drama of BP’s attempts to cap the oil spill in the Gulf, and of the chaos within the euro area, by far the most significant business story of the last few months was something else completely: Apple overtaking Microsoft as the world’s largest technology company.
It is a remarkable feat, and a testament to the determination of Apple’s guiding spirit Steve Jobs. But it is something else as well – a lesson in some of the fundamental principles that govern business and the markets. Apple’s unlikely resurrection is a reminder that, in a free market, all monopolies are transient: that consumers are far better at breaking up dominant companies than any regulator; and that arrogance and hubris will always undo even the mightiest of industrial empires.
A decade ago, anyone suggesting Apple stood any chance of overtaking Microsoft would have been dismissed as a drivelling lunatic. You might as well suggest that the Socialist Worker Party would take control of Tunbridge Wells council, that ITV would decide to replace Coronation Street with a series of Greek dramas to educate its viewers, or that Manchester City would overtake United as the town’s leading football club (ah, well, maybe that one isn’t so crazy). It would be dismissed as completely ridiculous.
Apple might have been one of the founders of the personal computer industry when it launched the first in its range of low-cost, easy-to-operate home PC’s in the mid-1970s. But as it completed its first quarter-century, it had been boxed into a dead-end by Bill Gates’s Microsoft. It’s closed, exclusive systems were stuck in a niche, bought only by graphic designers and a few techie nerds. The mass market, and the business market in particular, bought Windows. True, the clunky software may well have driven everyone bonkers, but it was the industry standard, and that was all that counted.
Indeed, so powerful had Microsoft become that by the turn of the last decade, anti-trust regulators were laying into the company, trying to force it to stop bundling its products together. It appeared to many people a monopolist, the Standard Oil of the digital age – a company so powerful that it could extract huge profits from helpless consumers for decades to come unless broken apart by government.
That, of course, misses the point about a free market. The consumer is always the king. And, usually, the customer, is a long way ahead of the regulators. As Microsoft reached the zenith of its power, the information and computing market was fast moving on. Apple recaptured the high ground with the launch of the brilliantly designed iPod music player in 2001, followed by the iPhone in 2007, and, this year, the iPad. It sensed that the next wave of computing was about small, mobile devices, not big desk-top PCs, and captured that market with verve and aggression. Microsoft had some success with its Xbox games console, but apart from that it was stuck with its little-loved operating system, and the office software it sold with them. Expanding out of that market proved impossible. Ever heard of its Zune music player? Nope, me neither. It currently has a barely noticeable 2% market share.
No great surprise, then, that Apple stock has been climbing, whilst Microsoft’s has been falling. Last week, Apple’s market value tipped past $222 billion, nudging ahead of Microsoft’s for the first time. Apple is now the biggest technology company in the world, and, remarkably enough, the second-biggest company in the US, behind Exxon Mobil.
There are three lessons investors should draw from that remarkable transformation.
First, all monopolies are transient. They are a product of a particular time: there is something about the market, or the technology, or the state of the competition, that allows one company to become dominant. But those circumstances are usually very brief. Within a few years, the market will have changed, and the competition will have transformed itself. In reality, so long as the market is open to new players, we should worry about monopolies a lot less than we often do. More often than not, they will have fallen from dominance in a few years anyway.
Second, the consumer is a far more powerful regulator than any government agency. A decade ago, the regulators were getting ready to break-up Microsoft because they feared its dominance of the technology market was stifling new players. They wanted to smash it to pieces, the way John D. Rockefeller’s Standard Oil had been in 1911. But, as it turned out, customers did a far better job of that. They stopped automatically using Microsoft’s web browsers, they showed total indifference to its music players, and its search engines remain a well-kept secret outside of Seattle. The technology market of 2010 is far more diverse. Microsoft didn’t need to be broken up to achieve that.
Finally, arrogance and hubris will humble even the most mighty industrial empires. A decade ago, Microsoft might have looked the safest investment in the world: a virtual monopolist in the world’s fastest-growing industry. It controlled just about every desktop in the world. But it became lazy. It didn’t take much notice of the internet to start with, and it never got the hang of social networking. It didn’t catch onto the significance of music players, and for a long-time appeared to think mobile phones were a completely separate industry from computing. The lesson? Avoid companies at the zenith of their powers. Once you dominant an industry, usually the only way is down.
Apple no doubt will go the same way. The control it maintains over its software may well prove its undoing. Google and Facebook will be chipping away at its products. So too will dozens of newly-formed competitors. Its reign may prove even shorter-lived than Microsoft’s. Even so, its resurrection is a useful reminder that all monopolies are fleeting. And that investors should bear in mind that no company ever has a lock on any market, no matter how strong it might appear at one particular moment.
For all the drama of BP’s attempts to cap the oil spill in the Gulf, and of the chaos within the euro area, by far the most significant business story of the last few months was something else completely: Apple overtaking Microsoft as the world’s largest technology company.
It is a remarkable feat, and a testament to the determination of Apple’s guiding spirit Steve Jobs. But it is something else as well – a lesson in some of the fundamental principles that govern business and the markets. Apple’s unlikely resurrection is a reminder that, in a free market, all monopolies are transient: that consumers are far better at breaking up dominant companies than any regulator; and that arrogance and hubris will always undo even the mightiest of industrial empires.
A decade ago, anyone suggesting Apple stood any chance of overtaking Microsoft would have been dismissed as a drivelling lunatic. You might as well suggest that the Socialist Worker Party would take control of Tunbridge Wells council, that ITV would decide to replace Coronation Street with a series of Greek dramas to educate its viewers, or that Manchester City would overtake United as the town’s leading football club (ah, well, maybe that one isn’t so crazy). It would be dismissed as completely ridiculous.
Apple might have been one of the founders of the personal computer industry when it launched the first in its range of low-cost, easy-to-operate home PC’s in the mid-1970s. But as it completed its first quarter-century, it had been boxed into a dead-end by Bill Gates’s Microsoft. It’s closed, exclusive systems were stuck in a niche, bought only by graphic designers and a few techie nerds. The mass market, and the business market in particular, bought Windows. True, the clunky software may well have driven everyone bonkers, but it was the industry standard, and that was all that counted.
Indeed, so powerful had Microsoft become that by the turn of the last decade, anti-trust regulators were laying into the company, trying to force it to stop bundling its products together. It appeared to many people a monopolist, the Standard Oil of the digital age – a company so powerful that it could extract huge profits from helpless consumers for decades to come unless broken apart by government.
That, of course, misses the point about a free market. The consumer is always the king. And, usually, the customer, is a long way ahead of the regulators. As Microsoft reached the zenith of its power, the information and computing market was fast moving on. Apple recaptured the high ground with the launch of the brilliantly designed iPod music player in 2001, followed by the iPhone in 2007, and, this year, the iPad. It sensed that the next wave of computing was about small, mobile devices, not big desk-top PCs, and captured that market with verve and aggression. Microsoft had some success with its Xbox games console, but apart from that it was stuck with its little-loved operating system, and the office software it sold with them. Expanding out of that market proved impossible. Ever heard of its Zune music player? Nope, me neither. It currently has a barely noticeable 2% market share.
No great surprise, then, that Apple stock has been climbing, whilst Microsoft’s has been falling. Last week, Apple’s market value tipped past $222 billion, nudging ahead of Microsoft’s for the first time. Apple is now the biggest technology company in the world, and, remarkably enough, the second-biggest company in the US, behind Exxon Mobil.
There are three lessons investors should draw from that remarkable transformation.
First, all monopolies are transient. They are a product of a particular time: there is something about the market, or the technology, or the state of the competition, that allows one company to become dominant. But those circumstances are usually very brief. Within a few years, the market will have changed, and the competition will have transformed itself. In reality, so long as the market is open to new players, we should worry about monopolies a lot less than we often do. More often than not, they will have fallen from dominance in a few years anyway.
Second, the consumer is a far more powerful regulator than any government agency. A decade ago, the regulators were getting ready to break-up Microsoft because they feared its dominance of the technology market was stifling new players. They wanted to smash it to pieces, the way John D. Rockefeller’s Standard Oil had been in 1911. But, as it turned out, customers did a far better job of that. They stopped automatically using Microsoft’s web browsers, they showed total indifference to its music players, and its search engines remain a well-kept secret outside of Seattle. The technology market of 2010 is far more diverse. Microsoft didn’t need to be broken up to achieve that.
Finally, arrogance and hubris will humble even the most mighty industrial empires. A decade ago, Microsoft might have looked the safest investment in the world: a virtual monopolist in the world’s fastest-growing industry. It controlled just about every desktop in the world. But it became lazy. It didn’t take much notice of the internet to start with, and it never got the hang of social networking. It didn’t catch onto the significance of music players, and for a long-time appeared to think mobile phones were a completely separate industry from computing. The lesson? Avoid companies at the zenith of their powers. Once you dominant an industry, usually the only way is down.
Apple no doubt will go the same way. The control it maintains over its software may well prove its undoing. Google and Facebook will be chipping away at its products. So too will dozens of newly-formed competitors. Its reign may prove even shorter-lived than Microsoft’s. Even so, its resurrection is a useful reminder that all monopolies are fleeting. And that investors should bear in mind that no company ever has a lock on any market, no matter how strong it might appear at one particular moment.
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