IBM’s Demise – Why You Can Do MUCH Better

IBM’s Demise – Why You Can Do MUCH Better

On Friday, January 22, 2021 IBM announced sales and earnings results. Revenues had fallen 6.5%. The stock dropped 11%. IBM alone caused an otherwise up Dow Jones Industrial Average to decline. And, as the NASDAQ rose, largely due to tech stock improvement, IBM was the lone loser. The new CEO, in his role only 1 quarter, predictably asked for more time and investor confidence that the future would look better than the past. Investors justifiably lost confidence a long time ago.

Unfortunately, IBM’s recent performance was just a continuation of its long-term trend. Since 2000, IBM stock has gone nowhere – up a mere 5.7% in 21 years – while Apple (for example) is up some 14,000%. IBM was the 7th largest company on the S&P500 in 1976 when Apple was born. Now Apple’s revenues are 3x IBM’s, and its market capitalization is 20x higher!

A lot of blame must be laid on the former CEO, Virginia (Ginny) Rometty. CEO from 2012 to end of 2020, she took home pay of around $35M/year. But during her tenure IBM sales fell in 30 of 34 quarters! Starting shortly after being appointed, IBM suffered 20 consecutive quarters of declining revenues – a remarkably infamous achievement for any CEO!

In 2012, just as Rometty was settling into her new desk, I said Steve Ballmer was the worst CEO in America (link 1). Little did I know he would be replaced with a new CEO that would turn around Microsoft and save the company, while Rometty would replace Ballmer as absolutely the worst CEO in the tech world – and tie herself with Immelt of GE as the worst CEO in all of America.

By 2014, it was clear that Rometty was altogether wrong as CEO, and I told investors to avoid IBM altogether. In 2 years, revenues had begun their declining trend, and she was constantly on the defensive. Instead of investing in cloud computing and other emerging technology solutions, Rometty was selling IBM’s business in China (because we all know that China was not a growth market – except someone forget to tell Apple and Facebook,) and the PC business. Simultaneously Rometty was cutting R&D spending. And she took on more debt. Where was all the money going? Not into growth investments – but rather into stock buybacks where IBM had become the poster child for financial machinations and share manipulation in order to enhance executive bonuses.

Despite IBM bragging about its one-off supercomputers and interesting artificial intelligence uses, there were no new commercial products helping customers build out trends. So IBM partnered with Apple to build “enterprise apps” in iOS in late 2014. This was doomed. IBM brought nothing to this game. IBM was now wholesale saying its development would be on platforms driving revenue growth for Apple – not IBM. IBM was admitting it had a lot of resources (still) and customers, but no idea where the marketplace was headed. So IBM would help Apple grow its user base. This was great for Apple, bad for Microsoft Surface sales, but absolutely horrible for IBM.

So by 2017, IBM was in an irrecoverable Growth Stall. Twenty quarters into the job, and twenty quarters of declining sales meant IBM was in a Growth Stall which predicted a horrible future. But despite the horrific sales and earnings performance, and the resulting horrific stock performance which in no way kept up with the overall market or industry leaders, Rometty was being granted ever more compensation by a ridiculously out of touch Board of Directors. She was being rewarded for manipulating the financials, not running a good business. She clearly needed to be fired. I said so, and told investors not to expect any gains as IBM continued to shrink.

By 2018, even the most long-term of long-term investors, Warren Buffet of Berkshire Hathaway, had given up on Rometty and IBM. As I said then the writing was on the wall by 2014, so why it took him so long was hard to understand. But it was quite clear, falling revenues would lead to lower valuations, regardless how much effort CEO Rometty put into “managing earnings.” The big shock was it took the Board 2 more years to finally get rid of her — one of the 2 worst performing CEOs in American’ capitalism.

Why do I bring up all these old blogs of mine? First, to demonstrate that it IS possible to make accurate business predictions. It is straightforward, once the key trends are identified, to  see what companies are building out trends, and which are not. Those who ignore trends are doomed to do poorly, and you don’t want to own their stock. If you are running your business looking internally, and thinking about how to squeeze out a few more dimes of cost you are NOT doing the right thing. You must look externally and build on trends to GROW YOUR REVENUE!

2nd, I have long preached that the #1 indicator of companies that are likely to succeed or fail lies in charting revenue growth. If revenues aren’t growing at 8-10%/year, then as an investor or company leader you need to worry. The company isn’t keeping up with inflation and general economic activity. Too few CEOs (and investors) pay enough attention to revenues. They are happy with lackluster sales while paying too much attention to expenses and managing earnings. That is never a winning strategy. If you don’t grow revenues you can’t grow cash.

3rd, you must consistently invest in innovation and new solutions that build on trends. All solutions become obsolete over time. It is imperative to constantly invest in new products, new offerings, that build on trends in order to keep revenues flowing your way. No company can succeed long unless it invests in innovation to keep itself current, and relevant with customers.

Along with Steve Ballmer and Jeffrey Immelt, Virginia Rometty will go down in history as one of the worst CEOs of this era. Like Immelt’s crushing of GE, Rometty led the demise of the once mighty IBM. You can do better. Keep your eyes on trends, focus on revenues and never stop innovating.


Do you know your Value Proposition? Can you clearly state that Value Proposition without any linkage to your Value Delivery System? If not, you better get on that pretty fast. Otherwise, you’re very likely to end up like encyclopedias and newspaper companies. Or you’ll develop a neat technology that’s the next Segway. It’s always know your customer and their needs first, then create the solution. Don’t be a solution looking for an application. Hopefully Uber and Aurora will both now start heading in the right directions.

Don’t Miss Adam’s Recent Podcasts!

Did you see the trends, and were you expecting the changes that would happen to your demand? It IS possible to use trends to make good forecasts, and prepare for big market shifts. If you don’t have time to do it, perhaps you should contact us, Spark Partners.  We track hundreds of trends, and are experts at developing scenarios applied to your business to help you make better decisions.

TRENDS MATTER. If you align with trends your business can do GREAT! Are you aligned with trends? What are the threats and opportunities in your strategy and markets? Do you need an outsider to assess what you don’t know you don’t know? You’ll be surprised how valuable an inexpensive assessment can be for your future business.  Click for Assessment info. Or, to keep up on trends, subscribe to our weekly podcasts and posts on trends and how they will affect the world of business at www.SparkPartners.com

Give us a call or send an email.  Adam@sparkpartners.com  847-331-6384

The Decline and Fall of Chicago and Illinois

The Decline and Fall of Chicago and Illinois

Chicago, and Illinois, are in big economic trouble.

  • 7th straight year of population decline. Losing 235,000 people in 10 years, 3x the amount of any other state. Last year saw a decline of 79,500 people – second only to much larger New York – and the rate of people leaving is accelerating.
  • Illinois has, on average, property taxes 2x the national average. If you owned the “Home Alone” house in suburban Chicago, since the movie was made in 1990 you would have paid $890,000 in property taxes.
  • Chicago is the worst residential real estate market of any large city in America. While values have been rising elsewhere since the Great Recession, in the last decade, property values in Chicago have declined 20%.
  • Sales tax is 9%, and on some products 10%+, one of the highest rates in the USA. On-line purchases are taxed at 10.25%, for example. Illinois is one of only 7 states to charge sales tax on gasoline. And Illinois has the highest cell phone tax in the country.
  • Illinois roadway toll fees are widespread, and among the highest in the USA, with the majority of those funds going NOT to road improvement but rather into the general budget to cover state expenses.
  • Illinois is 46th in private sector job growth – and would be 50th except the #1 source of job growth is government jobs. And 40% of the government workforce makes $100k+/year. The total number of jobs in Illinois December, 2019 was 6.2M – unchanged since 2015 – and up only slightly from 5.9M in 2010 – yielding a pathetically low growth rate for jobs of 1/2 of 1% (.5%) per year
  • 1/3 of the state budget is pension payments, and pension debt is 26% of state GDP – highest in the country. Lots of retirees, very few new jobs to pay their pensions.

Click for ebook

Business Trends from COVID19 impact hartung

Thrive to the Future – 4 top trends for 2021 and beyond.

Gibbon wrote “The Decline and Fall of the Roman Empire” as a treatise to uncover how such a powerful empire could lose its greatness. There is no doubt, Chicago and Illinois were once great. The area was known for great jobs, great infrastructure, great transportation system, great homeownership – and for many decades considered one of the best places to live in America. Back when agriculture and manufacturing dominated the economy. But quite obviously, as the world changed, and the sources of economic value (including jobs) changed, the late, great state of Illinois kept pushing on with “business as usual” instead of changing policies and investments to re-orient for the Information Era.

Things were not destined to become this bleak.  Chicago could be Austin today – but obviously it isn’t.  Where Austin, and Texas, looked at trends and made investments beyond the old “core” of oil and gas, Chicago and Illinois completely failed to look at trends that indicated a clear need to change. Problems, and the path to solve them, have been obvious for years.  It was easy to predict this would happen.  But a chronic focus on the short-term, rather than the long-term, combined with a complete unwillingness to change how investments were made caused state and city leaders to consistently ignore warning signs and make one bad decision after another.

Indicators of Decline

I’m an expert on trend-based planning, so let’s take a look at the telltales this was coming and how those telltale indicators were ignored:
  • In February, 2006 (yes 15 years ago) I wrote that Illinois was the #1 net job loss market in the country. This factoid highlighted an emerging problem in the underlying economy.  The state was still considerably dependent on old-line agriculture/food giants, those businesses were crumbling and unlikely to recover as the economy shifted.  Notably Kraft was in its 5th year of what was to be a turnaround (that never happened) and Sara Lee was under incompetent leadership that kept selling businesses to shore up declining revenues and earnings.  The state, and city, had failed to develop an infrastructure for investment in start-up companies.  There was a total lack of investment money for entrepreneurs from paternalistic large companies such as Motorola and Ameritech. And a lack of money for innovation from banks, venture capital and private equity firms.  Existing businesses were aging, cutting jobs and none were focused on investing in new companies to keep the local economy tied to the emerging Information Economy [ link  ]
  • In February, 2009 Forbes selected Chicago as the 3rd most miserable city in the USA, citing high taxes, no job growth, infrastructure decay, congestion and bad weather.  An uproar ensued – but no change. I then noted my 2006 column, and recommended a very serious Disruption in how Chicago was managing its resources. Clearly the “more of the same” strategy trying to defend its past was not working.  Unless there was a disruption, Chicago would get worse – not remain the same, and certainly not get better.  The signs were clear that from ’06 to ’09 nobody was thinking about the big changes needed [ link  ]
  • In June, 2010 it was reported that Illinois lost 260,000 jobs between 2000 and 2010 – and that was an indicator of why Chicago and the state were having so many economic problems.  I recommended the city and state make significant changes in resource allocation to keep more start-ups local.  The University of Illinois was the #4 engineering school in the US, but the vast majority of graduates left to one or the other coasts. Local businesses were not developing new businesses, thus not hiring these top students.  Start-ups at the universities, and by recent grads, could not obtain funding, so they fled to where the money was.  Economic reliance on stalled companies like Kraft, Sara Lee, Motorola, Lucent, Sears and United had created a Growth Stall that was sure to lead to additional job losses – when the best talent was right there in the state! [link ]
  • I followed up a week later that same June with a column on how Mayor Daley was very popular with voters and local businesses, but he was setting up the city (and state) for failure.  There was a focus on keeping the “old guard” happy, and doing so by completely ignoring opportunities for future growth.  Offering tax breaks and subsidies to recruit corporate headquarters (like Boeing) created very few jobs, and was a poor use of resources that should be diverted to funding start-up tech and bio-tech companies.  And financial machinations, like selling the city’s parking rights, gave a short-term lift to the budget, hiding significant weaknesses, while creating massive long-term problems. Chicago and Illinois politicians were focused on short-term actions to get votes, and ignoring the very real jobs problem that was tanking the economy.  [ link ]
  • By April, 2014 I was able to clearly demonstrate that my predicted economic stagnation spiral had taken hold in Illinois.  Defend & Extend investments to shore up declining companies – like Sears – robbed local governments of funds for job creating programs.  And a decade + of no job creation was forcing taxes up – at a remarkable rate – which kept businesses from moving to Illinois; kept them from opening software labs, coding facilities, research centers, pharma and bio-pharma production plants, etc.  With no growth, but rising costs, the death spiral had begun and needed immediate attention [ link  ]
  • In September, 2016 the outward migration from Chicago and Illinois had become a powerful trend.  Looking at demographics, the market was aging.  Rising costs and no growth had pinched budgets to the limit, while pension costs had become an unsustainable burden on the state’s citizens.  Just like Japan was in an aging crisis, Illinois was in an aging crisis.  And this was destined to create even more problems for the economic death spiral that began before 2006. [ link  ]
  • So by January, 2017 the demographic tailspin was clearly creating a vacuum pulling people out of Chicago and Illinois.  Fully 4 years ago it was obvious that the predicted trends had taken hold, and nothing short of an incredible disruption would save Chicago from becoming the next Detroit. Using the simplest trend planning tools made it clear that unless there was radical change in investments the Chicago empire was at its end. [ link  ]

Lessons for business?

Far too many businesses act like Chicago. “Business as usual” dominates.  Resources are automatically routed to defending old business lines, rather than investing in new products and solutions.  Focusing plans on historical customers, products and markets create blindness to market shifts, and a reluctance to move forward to new technologies and markets.  Very little energy is put into trend analysis, and plans are not built based on trends and likely future outcomes (planning from the past dominates over planning for the future.)  People who point out likely future bad outcomes unless serious change is undertaken are ignored, or shouted down, or removed entirely. Short-term financial machinations (selling assets, or a business, or offering deep discounts to keep customers) create an illusion of security while long-term trends are undermining the business’ foundation.
We are experts at trend analysis, trend planning and effective resource allocation.  It was clear 15 years ago that major resource reallocation was necessary for Chicago to continue growing its economy. Don’t let a fixation on doing more of the same get in the way of your future growth, like Chicago.  Let us help you identify critical trends and invest smarter to build on trends and grow.

Key lessons?

First, the world is growing and leading businesses will grow. If you’re not growing, you’re dying. Just like GE and Exxon. Second, never plan from past success, but instead plan for the future. You don’t grow value by being operationally excellent, because the world is forever changing and it will make your past business less valuable even if you do run it well. Third, make sure your plans are all built on trends. Let trends be the wind in your sales, or the current under your boat, or whatever analogy you like – just be sure you’re using TRENDS to drive you business planning, product development and solutions generation. Customers buy trends and help for them to achieve the future.


Don’t Miss Adam’s Recent Podcasts!

Did you see the trends, and were you expecting the changes that would happen to your demand? It IS possible to use trends to make good forecasts, and prepare for big market shifts. If you don’t have time to do it, perhaps you should contact us, Spark Partners.  We track hundreds of trends, and are experts at developing scenarios applied to your business to help you make better decisions.

TRENDS MATTER. If you align with trends your business can do GREAT! Are you aligned with trends? What are the threats and opportunities in your strategy and markets? Do you need an outsider to assess what you don’t know you don’t know? You’ll be surprised how valuable an inexpensive assessment can be for your future business.  Click for Assessment info. Or, to keep up on trends, subscribe to our weekly podcasts and posts on trends and how they will affect the world of business at www.SparkPartners.com

Give us a call or send an email.  Adam@sparkpartners.com  847-331-6384

Trends Drive Value- Apple, Amazon, Google, Facebook, Microsoft

Trends Drive Value- Apple, Amazon, Google, Facebook, Microsoft

Click for ebook

Business Trends from COVID19 impact hartung

Thrive to the Future – 4 top trends for 2021 and beyond.

When looking at America’s 8 largest companies, a LOT has changed in 15 years. Back in 2005 the most valuable company was GE. The list was dominated by oil & gas companies; ExxonMobil, BP, Royal Dutch Shell. The biggest bank (Citi) and biggest retailer (Walmart) and 1 pharma company (J&J.) There was only 1 tech company on the list (Microsoft.)Value of top eight tech companies

But the world has changed, and that has impacted these companies dramatically. Most had GREAT pasts, but they did not adapt to a changing world. GE’s market cap has fallen 75% as it failed to keep up with trends. Oil companies failed to move into renewables and other industries (like electric car production) and they’ve lost over HALF their value. Walmart is most noted for missing the e-commerce trend, the big banks were clobbered by the Great Recession and “big pharma” hasn’t produced a blockbuster for many years. All down significantly.

But, the value of the top 8 companies is MUCH higher than 15 years ago – 5X more. These losers were replaced by some very serious winners. From $2.1T in combined value, the top 8 are now worth $10.5T. But notably, only 1 company is still on that list – Microsoft – which is up 620%!

The list is now dominated by 7 technology companies.

And for good reason – they all followed trends. Apple, Amazon, Microsoft, Alphabet (Google,) Facebook, Alibaba and Tencent all built their strategies around developing solutions for people to follow the major trends of being mobile, operating asynchronously, supporting gig work and adding artificial intelligence (AI) to their customers. By refusing to rest on past laurels they have become the mega-giants of today. (Hartung, “Thrive to the Future – The 4 Top Trends for 2021 and Beyond)

 

Value of top eight tech companiesThat these companies would overtake old leaders was not a foregone conclusion – nor an obvious one to most people. Not only were the previous giants big, they had incredible reputations and extremely strong management teams. And these tech companies were not without problems.

  • Apple almost went bankrupt just a few years prior to 2005, trying to be the “Mac” company. But Apple built one innovation after another helping people meet the emerging big trends – until it became the most valuable company on the planet (10 yr value increase 540%)
  • Microsoft was locked in to its Windows/Office domination and seemed unable (or unwilling) to acknowledge the big trends and its value languished under a terribly myopic CEO (Ballmer.) Yet, new leadership was able to see the trends and moved radically to build out cloud services and support for alternative customer solutions that changed the company and its fortunes (10 year value increase 330%)
  • Amazon was a former book seller turned general merchandiser. But Amazon started applying technology to understand its customers and help them be better shoppers, using AI to make them the leader in all things e-commerce. Simultaneously Amazon built the worlds largest and most secure cloud services business (AWS) helping support all major trends (10 year value increase 1,350%)
  • Google was a search engine, with an unclear business model. But Google went to unexpected lengths to make ALL forms of information digital, and accessible, and searchable. And it monetized that digitization in ways far beyond anyone expected leading to the end of newspapers and many other publishers (10 year value increase 370%)
  • Facebook was considered a fad for young people. Most business leaders thought Facebook’s users would disappear, and its young leaders would learn there was no revenue in attracting eyeballs (just as News Corps learned and shut down MySpace.) But Facebook built out the trend for social contact in a mobile, asynchronous smart way creating an entirely new business market called “social media.” Facebook looked at trends in how people connected, making brilliant acquisitions early of Instagram and WhatsApp that allowed Facebook family of products to become the #1 use of the internet (10 year value increase 450%)

Key lessons?

First, the world is growing and leading businesses will grow. If you’re not growing, you’re dying. Just like GE and Exxon. Second, never plan from past success, but instead plan for the future. You don’t grow value by being operationally excellent, because the world is forever changing and it will make your past business less valuable even if you do run it well. Third, make sure your plans are all built on trends. Let trends be the wind in your sales, or the current under your boat, or whatever analogy you like – just be sure you’re using TRENDS to drive you business planning, product development and solutions generation. Customers buy trends and help for them to achieve the future.


Do you know your Value Proposition? Can you clearly state that Value Proposition without any linkage to your Value Delivery System? If not, you better get on that pretty fast. Otherwise, you’re very likely to end up like encyclopedias and newspaper companies. Or you’ll develop a neat technology that’s the next Segway. It’s always know your customer and their needs first, then create the solution. Don’t be a solution looking for an application. Hopefully Uber and Aurora will both now start heading in the right directions.

Don’t Miss Adam’s Recent Podcasts!

Did you see the trends, and were you expecting the changes that would happen to your demand? It IS possible to use trends to make good forecasts, and prepare for big market shifts. If you don’t have time to do it, perhaps you should contact us, Spark Partners.  We track hundreds of trends, and are experts at developing scenarios applied to your business to help you make better decisions.

TRENDS MATTER. If you align with trends your business can do GREAT! Are you aligned with trends? What are the threats and opportunities in your strategy and markets? Do you need an outsider to assess what you don’t know you don’t know? You’ll be surprised how valuable an inexpensive assessment can be for your future business.  Click for Assessment info. Or, to keep up on trends, subscribe to our weekly podcasts and posts on trends and how they will affect the world of business at www.SparkPartners.com

Give us a call or send an email.  Adam@sparkpartners.com  847-331-6384

Why Uber’s Autonomous Car Project Flopped

Why Uber’s Autonomous Car Project Flopped

Click for ebook

Business Trends from COVID19 impact hartung

Thrive to the Future – 4 top trends for 2021 and beyond.

On December 7, Uber announced it is spinning out its autonomous car development effort to a new company- Aurora. On December 8, NASA announced a large flare from the sun was going to produce auroras over the northern hemisphere. NASA’s solar flare fizzled and there was no light show. What about Uber’s Aurora?

After spending what was likely a billion dollars on development, Uber is pushing its AGV out the door, along with $400 million, to be a separate company all on its own named Aurora. After a lot of development, serious steps forward in self-driving technology, and some problems, Uber is simply walking away. Expensively. It begs the question “what went wrong.”

The #1 problem with this investment was created at the outset. What is Uber’s value proposition? That was at the very least complicated, and at the worst never quite clear. Uber was always supposed to be a lot more than an alternative to taxi and limo services. Ostensibly Uber was a tech company that matched up unused resources with people who could use those resources – which is why Uber is often lumped into discussions with AirBnB. Both are supposedly tech companies that allow the unleashing of locked-up value in underused resources to marginal users who could benefit from the marginal increase in resource capacity.

If that’s the case, why would Uber invest in autonomous car technology? That’s what went wrong. People driving their own cars as gap-filling cabs is a value delivery mechanism. It is one use of the technology in one application. The value of Uber is supposed to be its matching technology with some elaborate pricing capabilities (surge pricing, for example.) But autonomous cars were an improvement in the delivery system – an effort to eliminate the costly driver and thus compete more specifically against taxis in ferrying around people. Uber confused its Value Proposition with its Value Delivery System – and thus it made huge investments in the latter when it should have remained focused on the former.

Uber needs to refocus on its Value Proposition.

How can Uber help me unlock value in my underused resources? How can Uber help me get better access to resources, help me access underused resources? Neither of those are met if I have to turn my car into an autonomous vehicle, at my own cost. In a way it actually defeats the Value Proposition, because rather than unleashing locked-up value in my resource (car) it causes me to invest in technology I don’t need and may not even want. And as an Uber user I get no additional value from the car being driverless – that doesn’t inherently help me meet my needs any better. Overall, autonomous vehicle technology really misses the point of the Uber Value Proposition.

Lots of companies make this mistake. They get so focused on how they are delivering value that they over-invest in the Value Delivery System, and lose sight of the Value Proposition. Encyclopedias got so focused on printing books they forgot their value proposition was instant information – thus letting Google drive them out of business. Newspapers were so focused on the process of daily newspaper prep and delivery they forgot their Value Proposition and let on-line news outlets kill them. Sears and ToysRUs got so focused on running traditional stores (and traditional retail metrics) they forgot their value proposition and let Amazon steal customers away. ABC, NBC, CBS, BBC got so focused on running broadcast television networks they let streaming services (Netflix, Disney+, Hulu) steal all the entertainment eyeballs.

Uber’s mistake just happens to be really costly, and really dumb.

They should never have invested in autonomous vehicle technology. Leave that for someone who identifies a very real unmet customer need that is fulfilled with an autonomous vehicle. The leadership of Aurora first and foremost have to define their value proposition – and then figure out how to deliver that value with their technology. Nobody succeeds by inventing a technology that solves no real problem – that’s how you get Segway! Or the Amphicar that turned itself into a boat. Instead, you identify the need then develop the delivery mechanism to fulfill that need.

Do you know your Value Proposition? Can you clearly state that Value Proposition without any linkage to your Value Delivery System? If not, you better get on that pretty fast. Otherwise, you’re very likely to end up like encyclopedias and newspaper companies. Or you’ll develop a neat technology that’s the next Segway. It’s always know your customer and their needs first, then create the solution. Don’t be a solution looking for an application. Hopefully Uber and Aurora will both now start heading in the right directions.

Don’t Miss Adam’s Recent Podcasts!

Did you see the trends, and were you expecting the changes that would happen to your demand? It IS possible to use trends to make good forecasts, and prepare for big market shifts. If you don’t have time to do it, perhaps you should contact us, Spark Partners.  We track hundreds of trends, and are experts at developing scenarios applied to your business to help you make better decisions.

TRENDS MATTER. If you align with trends your business can do GREAT! Are you aligned with trends? What are the threats and opportunities in your strategy and markets? Do you need an outsider to assess what you don’t know you don’t know? You’ll be surprised how valuable an inexpensive assessment can be for your future business.  Click for Assessment info. Or, to keep up on trends, subscribe to our weekly podcasts and posts on trends and how they will affect the world of business at www.SparkPartners.com

Give us a call or send an email.  Adam@sparkpartners.com  847-331-6384

Disney and Uber – Using Trends To Great Success

Disney and Uber – Using Trends To Great Success

Click for ebook

Business Trends from COVID19 impact hartung

Thrive to the Future – the 4 top trends for 2021 and beyond.

In February, Disney appointed a new CEO from inside the company. I was not a fan. He came from the traditional,old Disney businesses – studio movies and theme parks. Both of those businesses are historical artifacts, not growing, and clobbered by the acceleration of trends due to the pandemic. But…… after crashing almost 50% shortly after changing CEOs (and the pandemic hitting the USA) the stock just reached a new all time high – recovering all those losses and pushing ahead an additional 16%.

A lot of companies are complaining about how bad the pandemic has affected them. They were tied to their historical value delivery system, and working hard to keep optimizing that business model. They weren’t following trends, so when the pandemic accelerated trends to more mobile, more asynchronous work, greater use of gig resources and ever greater expectations for AI (artificial intelligence) they simply were not prepared.

uber business pivot

But smart companies moved really fast to implement their plans for new business based on trends. For example, while everyone thought of Uber as an alternative to taxis, leadership had already been looking at changes in package distribution. They could see problems in the post office, limitations (and pricing) to UPS and Fedex, and the “last mile” delivery problem everyone local had — as well as alternatives being tested by Amazon.com. So when demand for local deliveries picked up, Uber was ready to change. In a year demand for taxi type services fell 45%, but deliveries rose 100%!! And even though it was small, freight jumped 35%. The net was that in an extremely fast changing marketplace, gross bookings for the first 3 quarters of 2020 were $40.7M vs. $46.8M in 2019. In a terrible year, Uber was ready (and able) to move fast to implement changes to keep revenues moving forward.

And Disney is another great example. Theme parks and studio entertainment seemed to be relics of a bygone era, and in 2020, demand was hit hard. Theme parks fell 37% and studio movies fell 13%. I thought Disney would go into cost cutting mode exclusively and start down the road to irrelevancy.

Disney business pivot

But I was wrong. Yes, Disney did cut employment in those two divisions. Extensively. But that was an acceleration of something bound to happen. Those businesses were shrinking and outdated. However, simultaneously, Disney poured resources into Media Networks and Direct-to-Customer, two business units highly aligned with trends! Basically, Disney went from that old-line movie and parks company to a very well positioned e-commerce vendor and competitor to Netflix!! In just 9 months. Already, Disney has 80M subscribers for Disney+, compared to Netflix 200M, and is targeting 260M by 2024!!! Disney has demonstrated it is ready to launch first run movies, at much higher prices, on its network – building out new pricing schemes as well as new business models for streaming content!

The lesson here is to be prepared for change! Don’t build your plans just on the past – past products and customers. Instead, look hard at trends and build scenarios for the future based on trends. Be ready for those trends to accelerate. And then TAKE ACTION. Don’t wait. Don’t stall. Go to the future by implementing those plans.

If you are planning based on trends you will be prepared for big changes in your “base” or “core” business. And you’ll develop plans for new solutions that meet emerging trends. So when the opportunity presents itself, like in a pandemic – or something a lot less dramatic – you’ll be ready to implement a new business. You can shift your value delivery system quickly to continue meeting the Value Proposition that you offer your customers.

Congratulations to Uber and Disney for doing good trend planning and being ready. Are you properly planning? Are you ready for change?

Don’t Miss Adam’s Recent Podcasts!

Did you see the trends, and were you expecting the changes that would happen to your demand? It IS possible to use trends to make good forecasts, and prepare for big market shifts. If you don’t have time to do it, perhaps you should contact us, Spark Partners.  We track hundreds of trends, and are experts at developing scenarios applied to your business to help you make better decisions.

TRENDS MATTER. If you align with trends your business can do GREAT! Are you aligned with trends? What are the threats and opportunities in your strategy and markets? Do you need an outsider to assess what you don’t know you don’t know? You’ll be surprised how valuable an inexpensive assessment can be for your future business.  Click for Assessment info. Or, to keep up on trends, subscribe to our weekly podcasts and posts on trends and how they will affect the world of business at www.SparkPartners.com

Give us a call or send an email.  Adam@sparkpartners.com  847-331-6384

How Tesla Killed Exxon’s Valuation – Will You See Threats Coming?

How Tesla Killed Exxon’s Valuation – Will You See Threats Coming?

In September, 2015 (5 years ago) I wrote that Tesla was going to change global oil demand.  Why? Because Tesla had proven there was a market shift toward electric vehicles (EV’s).  Yes, the market was small. But every major auto company had seen the trend emerge, and all had EV’s on the drawing tables.  Simultaneously, this was showing a shift to “electrification” at the same time that solar energy costs were dropping in price similar to computer chips in the 1990s.  
 
The combination of shifts away from internal combustion engine (ICE) automobiles operating on petroleum, and the growth in renewable energy production from solar and wind was becoming obvious.  In sailing, there are small lengths of cloth attached to the sails specifically to obtain an early read on wind direction.  These are called “telltales.”  Looking at Tesla and growing renewable electricity generation, the telltales gave me confidence to specifically predict it would really hurt Exxon.

Now, 5 years later, most pundits think the world has reached “peak oil” usage, and demand for oil will only fall.
Since 2015 Exxon’s equity value (XOM) has declined 65%. Due to declining demand, the company is being forced to restructure and possibly cut its dividend as the company shrinks.

Some would look only at short-term issues like the pandemic, but the economy in China has fully recovered – yet its demand for oil has not.  Or some might say that oil prices are down only because Saudi Arabia and Russia are battling over market share – but this only portends more bad news for Exxon because 2 giants with the lowest cost battling for share will only make it harder for Exxon to sell products, even at a lower price and little or no margin.

Unfortunately, the pandemic has created an acceleration in the trends that are dooming profits for oil companies like Exxon.  Once business happened in physical meetings where we transported ourselves by auto or plane fueled by oil. Now, meetings are being held on-line, virtually.  Increasingly individuals, and companies, have learned not only how to use this technology but that they are more productive.  Less wasted commuting time, less wasted hallway conversation time, fewer interruptions, and a recognition that it is possible to cut meeting time allowing attendees to better streamline work and decision-making.  Speaking of work, virtual meetings are leading to better employee concentration due to better scheduling of time for meetings, and scheduling time for individual work.

Recall 2010 and the effort put into driving to work, or flying to meetings.   Exxon, GM, Ford, Boeing, United Airlines and American Airlines were economic leaders, reflecting the work methods of the Industrial Era.  Exxon was one of the 30 stocks on the Dow Jones Industrial Average.  But the Great Recession had taken GM off the Dow, and now declining oil demand has removed Exxon – following the path I previously predicted.
Look at current 11/2020 market capitalizations:
Exxon –              $133B
General Motors – $49B
Ford –                  $31B
Boeing –              $83B
United Airlines –  $10B
American Airlines – $6B
The world has changed.  Trends have prevailed. We are now more mobile-oriented, work more asynchronously and use more gig resources.  Now we connect by Zoom and travel on electrons.
 
teslacharging statons

REUTERS/Lucy Nicholson

Zoom market cap – $146B   
Tesla market cap – $380BWhy this walk down the path of recent history?  Markets shift – often a lot faster than we would like to imagine. The economic hurt on those left behind is enormous. The opportunity for new leaders even more enormous. On the back end of trends is a LOT of pain. On the front end of trends is a lot of happy, happy.  It is incredibly important to pick out the telltales and incorporate them into your planning.  Earlier rather than later.Let trends direct your investments and your business decisions – look forward not backward. You want to be Zoom or Tesla (or own the stocks,) not Exxon, GM or Boeing (nor own those stocks.)
 
If you don’t have a clear line of sight to the future, ask for help – it’s my job. Do you remember anyone else predicting this enormous shift back in 2015?  Back then oil was $100/barrel and Exxon was trading at $100/share.  More pundits were expecting the future to look like the past than to make a radical shift.  But we are always looking at the early telltales, always developing new scenarios, always preparing for market shifts and their implications.
Did you see the trends, and were you expecting the changes that would happen to oil demand? It IS possible to use trends to make good forecasts, and prepare for big market shifts. If you don’t have time to do it, maybe you should contact us!!  We track hundreds of trends, and are experts at developing scenarios applied to your business to help you make better decisions.

Or, to keep up on trends, subscribe to our weekly podcasts and posts on trends and how they will affect the world of business at www.SparkPartners.com

TRENDS MATTER. If you align with trends your business can do GREAT! Are you aligned with trends? What are the threats and opportunities in your strategy and markets? Do you need an outsider to assess what you don’t know you don’t know? You’ll be surprised how valuable an inexpensive assessment can be for your future business.  Click for Assessment info.

Give us a call or send an email.  Adam@sparkpartners.com  847-331-6384

DJIA Changes – Interesting, Yet Meaningless

DJIA Changes – Interesting, Yet Meaningless

On 8/31/20, the Dow Jones Industrial Average went through a change in composition. Out went Exxon, Pfizer and Raytheon. In came Salesforce.com, Amgen and Honeywell. This is the 8th time the Index components have changed this decade, the 13th time since 2000 and the 55th change since created in 1896. So changes are not uncommon. But, are they meaningful? Ask any academic and you’ll get a resounding “NO.” There is no stated criteria for selection, no metrics for inclusion, no breadth to the number of companies (which has changed significantly over time,) and not even a weighting for market capitalization! The DJIA has no relationship to “the market,” which could well be measured better by the S&P 500, or the Russell 3000. And it doesn’t even link to any specific industry! To academics, “the Dow” is just a random number that reflects nothing worth measuring!!

The DJIA is (currently) a group of 30 stocks selected by the editors of Dow Jones (publisher of the Wall Street Journal, owned by News Corp – which also owns Fox News – and controlled by Rupert Murdock). Despite its lack of respect by academics and money managers, because of its age – and the prestige of being selected by these editors – being on the DJIA has been considered somewhat revered. Think of it as an “editorial award of achievement” for size, profitability and perceived stability. For these reasons, over time many investors have believed the index represents a low–risk way to invest in corporations and grow their wealth.

So the daily value of the DJIA is pretty much meaningless. And being on the DJIA is also pretty much meaningless. But, investors have followed this index every trading day for 124 years. So, it is at least interesting. And that’s because it is a track on what these editors think are important very long-term economic trends.

The original Index composition looks NOTHING like 2020. American Cotton Oil Company, American Spirits Manufacturing Company, American Sugar Refining Company, American Tobacco Company, Chicago Gas Light and Coke, General Electric, Leclede Gas, National Lead, Pacific Mail Steamship Company, Tennessee Coal Iron and Railroad Company, United State Cordage Company and United States Leather Company. Familiar household names? This initial list represents the era in 1896 – an agrarian economy just on the cusp of coming into the industrial age. Not forward looking, but rather somewhat reflective of what were the biggest parts of the economy historically with a not forward.

Over 124 years lots of companies left the DJIA — were replaced – and many replacements left. Some came on, went off, and came back on again – such as AT&T, Exxon (formerly Standard Oil of New Jersey) and Chevron (formerly Standard Oil of California.) Even the vaunted GE was inducted in 1899, only to be removed in 1901 – then added back in 1907 where it stayed until CEO Jeff Immelt imploded the company and it was removed for good in 2018.

But, there has been a theme to the changes. Originally, the index was largely agricultural companies. As the economy changed, the Index rotated into commodity companies like gas, coal, copper and nickel – the materials leading to a new era of tools. This gave way to component manufacturers, dominated by the big steel companies, which created the industrial era. Which, of course, led to big manufacturing companies like 3M and IBM. And, along the way, there was recognition for growth in new parts of the economy, by adding consumer goods companies like P&G, Coca-Cola, McDonald’s, Kraft (since removed,) and Nike along with retailers like Sears (later removed,) Walmart, Home Depot and Walgreens. The massively important role of financial services to the economy was reflected by including Travelers, JPMorgan Chase, American Express, Visa and Goldman Sachs. And as health care advanced, the Index added pharmaceutical companies like Pfizer, Johnson & Johnson and Merck.

Obviously, the word “industrial” no longer has any meaning in the Dow Jones Industrial Index.

Reading across the long history of the DJIA one recognizes the editors’ willingness to try and reflect what was growing in the American economy. But in a laggard way. Not selecting companies too early, preferring instead to see that they make a big difference and remain important for many years. And a tendency to keep them on the index long after the bloom is off the rose – like retaining Kraft until 2008 and still holding onto P&G and Coke today.

The bias has always been to be careful about adding companies, lest they not be sustainable. And not judge too hastily the demise of once great companies. Disney wasn’t added until 1991, long after it was an established entertainment leader. Boeing was added in 1987, after pioneering aviation for 30 years. Microsoft added in 1999, well after it had won the PC war. Thus, the index is a “lagging index.” It reflects a big chunk of what was great, while slowly adding what has recently been great – and never moving too quickly to add companies that just might be tomorrow’s leaders.

Sears added in 1924, wasn’t removed until 1999 when its viability is questionable. Phillip Morris Tobacco (became Altria) was added in 1985, and hung around until 2008 — long after we knew cigarettes were deadly and leadership didn’t know how to do anything else. Even today we see that United Aircraft was added in 1939, which became United Technologies in 1976 and then via merger Raytheon in 2020 – before it is now removed, as all things aircraft are screeching to a pandemic halt. And Boeing is still on the Index despite the 737 fiasco and plunging sales. IBM was added in 1939, and through the 1970s it was a leader in office equipment creating the computer industry. But IBM after years of declining sales and profits isn’t really relevant any longer, yet it is still on the Index.

As for adding growing stars, GM stays on the Index until it goes bankrupt, but Tesla is yet to make consideration (largely due to lack of profit history.) Likewise, Walmart remains even though the “big gun” in retail is obviously Amazon.com (another lacking the size and longevity of profits the editors like.) McDonald’s stays on the list, despite no growth for years and even as the Board investigates its HR department for hiding abhorrent leadership behavior – while Starbucks is eschewed. And Cisco is there, while we all use Zoom for pandemic-driven virtual meetings.

So what can we take away from today’s changes? First, the Index has changed dramatically over 20 years to reflect electronic technology. IBM, Microsoft and Apple are now joined by Salesforce. Pharma company Pfizer is being replaced by bio-pharma company Amgen in a nod to the future, although almost 40 years after Genentech went public. Exxon disappears as oil prices fall to sub-zero, demand declines globally and electric cars are on the cusp of taking market leadership. And conglomerate Honeywell is added just to show the editors still think conglomerates matter – even if GE has nearly disintegrated.

Is any of this meaningful? I don’t really think so. As an award for past performance, it’s a nice token to make the list. As business leaders, however, we need to be a LOT more concerned about developing businesses for the future, based on trends, than is indicated by the components of the DJIA. Driving revenue growth and higher margins comes from doing the next big thing, not the last big thing. And, as investors, if you want to make outsized returns you have to know that a basket of largely laggards (Apple, Microsoft and Salesforce excepted) is not the way to build your retirement nest. Instead, you have to invest in companies that are creating the future, making the trends a reality for businesses and consumers. Think FAANG.

Nonetheless, after 124 years it is still sort of interesting. I guess most of us do still care what the editors of big news companies think.

TRENDS MATTER. If you align with trends your business can do GREAT! Are you aligned with trends? What are the threats and opportunities in your strategy and markets? Do you need an outsider to assess what you don’t know you don’t know? You’ll be surprised how valuable an inexpensive assessment can be for your future business (https://adamhartung.com/assessments/)

Give us a call or send an email.  Adam@sparkpartners.com

Now’s The Time To Buy FAANG Stocks

Now’s The Time To Buy FAANG Stocks

Since 2012, I’ve been a huge fan of Facebook, Apple, Amazon, Netflix and Google. And they have dramatically outperformed the market. In the last few weeks their values have fallen dramatically, and I’ve heard grumblings that these are no longer the stocks to own.

I virulently disagree. Great companies are where you should invest. If you don’t think these are great companies, you would be right to sell them (such as GE, Sears, and many others.) But despite complaints about privacy, usage rates, nefarious users, and other attacks on technology, the reality is that we love the convenience these companies gave us. We may not think things are perfect, but we are a lot happier than we used to be, and we are pretty happy with how these companies respond to product concerns.

  • These companies are still global leaders in some of the biggest and most powerful trends everywhere
  • The shift to e-commerce from traditional retail continues unabated
  • The movement to mobile devices continues
  • Using the cloud to replace device storage and network storage will not slow
  • Entertainment continues to move to streaming from TV and other sources
  • Ad growth remains firmly on the internet and mobile devices
  • Platform usage (such as social networks) keeps growing as more uses are developed

These mega-trends are the foundation of the FAANG companies. These companies became great by understanding these trends, then developing products for these trends that have attracted billions of customers. Their revenue growth continues, just as their product development continues. And their profits keep growing as well. Nobody ever saved their way to prosperity. To increase value you must increase profitable revenues. And that capability has not left these companies.

Some of these company’s leaders have recently been called to Washington to testify. Will they be attacked, split up, further regulated? Will the government kill the golden goose? Given that the US House of Representatives has not firmly moved to the Democrats, I see almost no sign of that happening. Democrats like happy constituents, and given how happy consumers are with these companies the Democrats are very unlikely to intervene. There has long been a deep friendship, built on significant campaign financing and lobbyist involvement, between these companies and Democrats. The change in government almost insures that the actions in Washington will prove to just be a lot of short-term heat, with little change in the overall lighting.

I don’t know when these stocks will reach a short-term bottom. Just like nobody can predict market highs, it is impossible to predict lows. But the one thing I feel very strongly about is that in a year these companies will be worth more than they are valued today.

For insight into my strong favorability for these companies, take a look at the infographic I’ve provided regarding Facebook. Despite the Facebook stock ups-and-downs, this infographic explains why long-term it has been very smart to buy Facebook. Despite how people have “felt” about the company, it is a GREAT company built on powerful trends. To understand even better, buy the ebook “Facebook, The Making of a Great Company” on Amazon for 99 cents.

The Bitcoin Fad – Successfully Understanding Trends vs Fads

The Bitcoin Fad – Successfully Understanding Trends vs Fads

It was August 15, 2017 when I wrote the column “A Bitcoin Is Worth $4,000 – Why You Probably Should Not Own One.” At the time Bitcoin’s value had increased in value by 750% in just one year, and some investors were becoming very excited about Bitcoins. Journal articles were nearly all bullish, with some big Bitcoin owners projecting they would increase in value to over $250,000 each – or possibly into the millions!

But I was far more pragmatic. I pointed out that Bitcoins had no inherent value – unlike a Picasso painting, for example. There will be no more original Picasso’s, and no more signed Picasso prints. The supply is completely known, and the price is determined by what people will pay for the artistic history of them. But anybody can make a Bitcoin. And even though there was some theoretical limit of 21 million, why anybody would want to own these non-physical data bits was unclear. Were people going to say “come, look at this hard drive. It contains 400,000 Bitcoins. Isn’t it cool?” Bitcoins were a lot more like Pokemon cards. There are a LOT of them, more coming all the time, and their value was only to people who wanted to play the Bitcoin game.

And I had a very low opinion of the necessity of Bitcoins as a currency. Everyone is pretty happy to use dollars, yen, euros, etc. And if you fear inflation there is an open market to exchange any currency for any other, so you can quickly keep your savings in the currency of your choice. The only valuable use of Bitcoins was as a currency for illegal activity you don’t want traced – such as sex trafficking, drug trafficking or gun running. While the outlaws in those occupations my enjoy a non-government currency, those folks are relatively few and far between, and the need for such currency is therefore pretty weak. Not to mention illegal.

It was pretty clear that Bitcoin was a fad. Like the famous Dutch Tulip Bulb fad that drove the price of a Tulip bulb higher than a house. While a fad the value went up, but because there was no inherent value to the bulb greater than a flower, it’s value was sure to collapse. And the same would happen to Bitcoins. To a long-term trend watcher, and person skilled at understanding trends for planning, Bitcoin had all the signs of a fad.

I remember this well because when I published this column in Forbes there was a Bitcoin editor that went ballistic. This person had no background in economics, banking, currency, stock markets, or art; the editor was a journalist who had decided Bitcoin was “the next big thing.” Bitcoin was going to overtake traditional currencies, and save the world from central banks dead-set on destroying free trade and economic growth.

Honestly, I never understood the argument. Baseless, and senseless. Bitcoin was a fad, I said clearly, and no investor should be buying them – especially small investors. And it was a fools folly to spend money becoming a Bitcoin miner. Simply invest somewhere else where trends supported growth.

But the editorial staff at Forbes landed on me like a herd of elephants coming down the Himalayas. Apparently Forbes was buying into the Bitcoin craze, and they didn’t want anyone writing bad things about Bitcoin. I pointed out that in 9 years my predictions about the future of Netflix, Amazon, Tesla – and GE, Sears, and Windows 8 and 10 – had all turned out to be accurate.

I tended to be very early with my predictions, and quite contrarian, but within 2 years I was proven right. I knew the difference between a trend and a fad, and it was important to help readers understand the difference. Bitcoins had no inherent value, and they were/are not an investment vehicle.

In the end the rancor about my Bitcoin prediction, and my unwillingness to reverse my position, caused a break between myself and Forbes. Even as Bitcoins soared in value to $19,000 by December, 2017 I held firm to the position that no sound, long-term investor should touch them. If Forbes couldn’t understand my surety, then it was their problem.

This week Bitcoins traded for $4,400. Where they traded on August 20, 2017 just as my prediction went public. Bitcoins were/are a fad. Now, there are a slew of authors writing about the lack of any reason for Bitcoins to exist. Almost all are predicting the value will continue eroding, as more and more people see there was never any value in them to begin with. Many predict this will not end until Bitcoins are worth nothing, or possibly a few cents, and all the Bitcoin miners disappear.

The important lesson is that it is not impossible to know the difference between a trend and a fad. Trends are based upon behaviors that have a basis in gain. We trended away from physical stores and toward e-commerce because the latter was more convenient, and sometimes cheaper. We trended away from PC’s with hard drives and toward mobile devices connected to the cloud because they made our lives more convenient, and often cheaper. We are watching more entertainment via on-line downloads, and less on television, because it is more convenient, and often better. These are trends. They are observable, measurable and good trends generate a better outcome for people, while bad trends are due to consumer movement toward new solutions.

When you work a job all week trying to get more done better, faster, cheaper you may not have time to study trends. When you see something new it can seem hard to know whether it is a fad, or trend. Or if a trend, how fast it will “take hold” and alter behavior. That is understandable.

And that’s where people like me make a difference. I focus on trends. Demographics, regulations, technology – all kinds of trends. I watch them, measure them, and project outcomes for the trend, and those who adopt the trend. I build scenarios that stretch out the trend, and look for when more people are following a trend than doing things the “old way.” And because I do that all day, every day, for 20 years it is possible to forecast with high accuracy what the future will look like.

Almost always it takes a bit longer than I think, but likewise it almost always takes a lot less time than almost everyone else thinks. I didn’t think it would take 5 quarters for Bitcoins to peak and then fall back to $4,400. But most people were projecting the value of Bitcoins would go up for YEARS. They couldn’t visualize the peak. Even though it happened just 4 months after I said “don’t buy Bitcoins.” Only a very, very lucky trader would have bought in August, and sold in December. For true investors, this was a roller coaster ride with an unhappy ending.

I don’t meet many company executives that do future scenario planning. They are too busy running their business to do trend analysis, projections and make long-term forecasts. But that doesn’t mean these things aren’t important. It just means you need to look for outsiders, who specialize in trend analysis and long-term scenario planning, to help you guide your business in the right direction. Because you’d much rather be Microsoft, shifting from PC’s to cloud and holding onto your value, than GE or Sears. You need a partner to help you forecast – and grow.

Facebook Launches “Portal” – Why You Want to Pay Attention

Facebook Launches “Portal” – Why You Want to Pay Attention

As all readers know, I am a fan of owning Facebook’s stock. For years I have pointed out that Facebook has been incredibly innovative at bringing people together. First, it was Facebook.com, but then leadership added WhatsApp and Messenger to expand the ability to communicate, and after that, Instagram which augmented communications via pictures and video.  These capabilities, largely asynchronous, have expanded how easily we can communicate with friends, colleagues and business connections. It is this capability that made Facebook a success, because it brought people to the platforms – and as the audience grew advertising dollars grew as well.

(Watch my 2 minute video on Facebook the Innovation Engine)

Now, Facebook has launched “Portal.” It’s a piece of hardware, similar to a tablet in size. It has a speaker and a microphone, like a smart speaker on steroids, or like an enhanced tablet designed for communicating. Built on Android, it supports a plethora of apps, and it integrates with Alexa so you can not only talk to up to 7 people at the same time, but you can all listen to music via Spotify or Pandora, etc., and you can use it to make purchases on Amazon.com

At first you’d probably say this doesn’t sound very exciting. After all, aren’t we awash in hardware from smart phones to tablets to laptops to smart speakers and connected home devices? Why would we want another piece of hardware, when we already have so many that do so many different things? And didn’t Amazon infamously try to launch a enhanced smartphone (Fire Phone) and enhanced tablet (Fire Tablet) targeted at shopping, only to fail miserably? You could say Portal is likely to follow Fire into the tech archives.

And, on top of this, aren’t people paranoid about Facebook and privacy? After Cambridge Analytica manipulated Facebook data in the last election, and then the recent breach which could have revealed information on 50 million users, aren’t people going to quit using Facebook products?

There really isn’t much data to indicate people care about these breaches, or possibly illegal uses of data. Almost everyone now realizes that whatever they post on any Facebook platform, the information is public. And the reality is that by putting their information out there it actually makes users’ lives easier. Users get connections they want, information they want, and products they want that much faster, and easier. These platforms make their lives more convenient, and billions of people have no problem exchanging somewhat personal information for the convenience it provides. The more Facebook knows about them, the easier their lives are, and the richer their network communications.

That is why I’m optimistic that Portal will have an audience. Facebook Messenger has 400 million users. Those users generated 17 billion messages in 2017. Now, imagine if those users could use Portal to make those messages clearer, more powerful. And, as of June, 2018 Instagram has 1 billion monthly active users. If you have Portal it makes Instagram connecting much easier and more interesting.

Portal doesn’t have to replace an existing smartphone or tablet. It merely has to help the people who use Facebook platforms have a deeper, more powerful connection with those in their network. If it does that, there is an enormous installed base of users who could find Portal helpful, in many ways. More helpful than a stand-alone, limited use Echo (or Dot) speaker, for example, which have sold over 47 million units so far.

Facebook is good at understanding its value proposition which is connecting people in powerful ways. Facebook has shelved products that didn’t augment this value proposition – like a generalized smart phone. But Portal has the ability to further enhance user experiences, and that gives it a decent chance of being successful. And when Facebook adds its Oculus technology to Portal, allowing for 3D communications, Portal could become a one-of-a-kind product for communicating with your network.

For a look back at Facebook’s history, and my forecasts for the company, read my new ebook, “Facebook – The Making of a Great Company.” (At Amazon.com for just 99 cents!) It will help you take a longer look at Facebook’s leadership, and give you a different view on Facebook’s future than the current negative press is providing. With the stock $70 off its high, and trading at the same price it was a year ago, you just might think this is a buying opportunity.