Alphabet (Google) Joins the Trillion Dollar Club

This week Google joined Apple, Microsoft and Amazon in the trillion-dollar valuation club. 

Location matters.
Microsoft and Amazon headquarters are 11.7 miles apart.
Apple and Google headquarters are 8.7 miles apart.

In 1901 US Steel became the first billion dollar company.
1955, GM, first to hit $10 billion
1995, GE, first to hit $100 billion
1999, Microsoft, first to hit $500 billion
2018, Apple, first to hit $1 trillion.

Here are some things you may find by googling Google.

Larry Page DOWNLOADED THE INTERNET in 1996 as part of his doctoral work at Stanford.

Larry Page grew up in the Bay Area and his dad was a big Grateful Dead fan, had a weekly radio show about the Dead. When Google could afford it, Larry Page hired a chef who had worked for the Grateful Dead to feed his employees. Every winter they had employee trips up to Squaw Valley and one year, Google employees were coming back to the chef to ask what had been in the ganja goo balls that was making them hallucinate.

3 years ago someone at Google told me they were spending $2 billion a year on employee meals. (Food - the fuel of knowledge workers - is free at Google.) I'm sure that has gone up. I don't think they serve ganja goo balls anymore.

In 1998, Jeff Bezos was so impressed with Page and Brin that he invested $250,000 in Google, buying what is now 6.6 million shares at the equivalent of 4 cents per share. (It closed today at $1,479.52 a share, so up 39,059X on Bezos investment.)

Trump Hikes Taxes - How Tariffs Really Work and Why They Rarely Do (work, that is)

Here in mid-September, Trump just announced tariffs on $200 billion in goods from China.

This is a tax on American consumers that works out to about $60 per American. Americans will pay that much more for items.

Who gets that money? American companies that have already proven themselves incapable of competing. American companies who need protection in the form of tariffs.

There are times when it makes sense to have trade protection in the form of tariffs. If your national policy is working to move from an agricultural to an industrial economy, or from an industrial to information economy it makes sense that you may want to protect some sectors or companies from foreign competition as they establish themselves against global competition. For awhile.

Companies that benefit from trade protection have a few options about what to do with the added revenue. They can increase the wages of hard-hit employees who have been competing against cheaper foreign labor. They can use the extra revenue to invest in new capacity or technology so that they are more competitive. Or they can payout the profit to stockholders and executives in the form of bonuses, using this subsidy from American consumers as a reward for having the political clout to do what they could not do through the market.

Tariffs are essentially a tax but not a tax that go to the government. Government spending can actually help displaced workers by funding unemployment and retraining. Government spending can finance infrastructure building that makes regions more competitive because of better rails or roads or cheaper energy or water. Government spending can go into the basic research that companies can develop into products.

Apple is now the most valuable company in the world, worth more than a trillion. It's most profitable product is the iPhone. The iPhone represents product development that incorporates research advances like touchscreen, satellite, and small chip technology originally funded by government research. (This is well documented in Mariana Mazzucato's The Entrepreneurial State.) Government research can lead to breakthroughs that not only help citizens but that can be the basis for new products that companies develop into highly profitable markets. A few billion in research spending can help to create trillions in value.

Tariffs don't help to finance basic research, infrastructure, education, or the creation of new industries and companies. Tariffs often subsidize companies that have not kept up, doing more to reward executives who have made campaign contributions than executives who have invested in the future. Within the last year, the GOP passed a tax cut that makes it harder to do any of these things. With Trump's new tariffs, it has just reversed that tax cut for the typical American and will now give that tax or tariff revenue to uncompetitive companies instead. 

Why iPay May Be Apple's Most Lucrative Product Yet

iPay may prove to be Apple's most lucrative product.

Today, Apple announced the release of two new iPhones, an iWatch, and iPay, which will work like a mobile wallet. They've teamed with various credit card companies like VISA, Mastercard and AMEX to enable iPhone users to simply pay with their phones as if their favorite device was a credit card.

On the surface that might sound fairly innocuous. They are certainly not the first to offer the ability to make a digital purchase, as reported by Molly Wood here. But it's worth remembering that Apple wasn't the first company to make a digital music player. They just made it wildly popular.

First, some background. During the 20th century, a quiet revolution transformed finance. One of the reasons it might have been so quiet is that it has the oddly eye-glazing name of banking disintermediation. But disintermediation gets to the heart of how the Information Economy transformed finance, which plays right into Apple's new market.

Once upon a time, bankers were uniquely positioned upon a wall that separated the folks saving money from those who wanted to borrow it. They could take money from the savers, paying them 1% for their money, and then loan it to the borrowers at 10% (less or more). Upon their wall, they were uniquely positioned to see each party, parties who could not see each other. Savers and borrowers didn't know each other so the banker played intermediary. This is a pretty lucrative position to be in. Still. (Last year Citigroup's revenues were $76 billion.)

But information technology has made it easier for borrowers and savers to find each other without the bank playing intermediary. As the cost of information has dropped, this wall separating borrowers and savers has slowly lowered, and with it the bankers' lofty perch. This disintermediation has a long history, one I explore in my book. The most recent instance of disintermediation is peer-to-peer lending. Lending Club, a San Francisco-based company founded in 2007, has facilitated $4 billion in loans. They are to lending what eHarmony is to romance. Why pay the banks the 9% difference between what you get for saving and she has to pay to borrow when you two can split the difference? There are billions - trillions - that can be retained within households by cutting out the bank. But of course far fewer people know and trust Lending Club than Apple.

Now Apple will get millions of people comfortable with the natural extension of what Dee Hock, VISA's founding CEO, realized years ago: money is just information. As millions of Apple users become comfortable with the idea of using their phones for purchases, it won't be long before they become comfortable using their phones - and the extensive networks they represent - for loans. People hate banks and love Apple. It's perfectly plausible that Apple's foray into finance will do to banks what their popularization of the iPod did to record companies.

And there is a lot of money to be had in finance. More, even, then in music.

California Cuts Back on Investments in the Future

Pat Brown - current governor Jerry Brown's dad - was governor of California from 1959 to 1967. In 1960, he made California the first state in the nation with a college system designed for all high school graduates. The University of California (UC) system that included Berkeley and UCLA was designed for the top 25% of high school graduates. The State system that included San Diego State University and Fresno State was designed for the top 50%. The community college system was designed for all high school graduates. At the time, it was an incredibly visionary - seemingly excessive - investment in the future.

I'm not alone in believing that it is no coincidence that California is the state that later became home to two of the great advances in human history: Silicon Valley and Bio-tech. But there was real lag between Pat Brown laying the foundation in 1960 and the founding of Apple and Genentech in 1976, much less the tech boom of the 1990s.

All that to say that it's worth paying attention to the fact that the golden state is now cutting back on its investments in education. Not only is it becoming more expensive for college students but even in K-12, the state is failing to invest. California has the worst pupil-to-student ratio in the country.

It's hard to imagine this is going to mean anything good for the state in 2030. Jerry Brown has helped to balance California's budget, showing himself a more able accountant than Arnold. Now we can hope that he shows himself to be as savvy an investor as his dad and reverses California's fall into educational mediocrity.

How Smart Phones Got So Smart

I think that I'm just going to wait another decade for the Dick Tracy watch.

The Delayed Side Effects of Sonograms

Of course, everything looks so inevitable in retrospect but ...

Last year, Apple's stock doubled. You could have bought 1,000 shares for just under $7,000 in early 2003 and those shares would be worth about $200,000 today.

The iPod seems to have led the revival of Apple. Who would have thought that the generation first discovered by sonogram would become rabid consumers of products that envelope them in sound?

iPhone, uPhone, We All Phone Each Other

Yesterday Steve Jobs introduced a beautiful little product, the iPhone. As with all great hardware, it immediately creates demand for appropriate software: social networking software able to find friends as cool as the phone you're now using.