Business & Money
In business, there are basically two ways to increase revenues. You can raise prices or sell more volume.
It seems that selling more volume generally incurs an incremental cost/investment. If we’re talking about manufacturing, the machines need to stay on longer or you need to invest in better equipment. With services, you require more time and/or human capital. I guess the notable exception to this rule would be software and platforms where the idea is to drive marginal cost to 0.
On the pricing side, if you can manage it, raising prices seems to be the superior of the two options. If you can raise the price, and don’t suffer any loss in volume, revenue goes up without changing anything else. No incremental capital or cost required.
The archetypical example of this is Berkshire Hathaway’s acquisition of See’s Candies. When Buffett purchased the company in 1972, there were doing about 17 million pounds per year. A decade later, that total grew to 24 million pounds for a compound annual growth rate (CAGR) of 3.5%. Nothing special. However, revenues grew from $31 million to $124 million over the same period for a CAGR of 15%! All they did, in spite of meager volume growth, was simply boost prices by 10% every year. And because See’s had built a strong brand, they didn’t suffer any loss in volume.
I’m thinking about this due to 2 contemporary examples of the same idea.
The first is Netflix. Over the last 4 years, we’ve seen pricing go from $7.99 per month to $13.99 per month for the premium tier. And we haven’t seen any negative impact on subscriber growth. Netflix has pricing power, so much so that I wouldn’t be at all surprised to see more price hikes. I won’t be canceling any time soon.
The second example is Amazon, who just last week boosted the monthly subscription price of its Prime service by 18% (the $99 annual subscription option remains unchanged). I don’t see this having any negative impact on the company, and again probably won’t be the last hike. If anyone has pricing Power, Amazon Prime definitely has it.
On Thursday, HuffPo announced that they’re shutting down their contributor network. I don’t even read HuffPo, but this news caught my attention nonetheless. Specifically, if you are a contributor (or were at any point), you are basically SOL.
I say that because, if you post exclusively on HuffPo, or any platform owned by a third party (Medium, LinkedIn, Forbes, etc), then you do not own your own destiny. You don’t own your content, your archives, your audience, or anything else. You are completely at the mercy of the platform. Incentives will never be aligned.
This is the primary reason that I now blog from my own domain using open source software on a shared server that I can move if I’d like to. It’s a bit more complicated than simply posting something on Medium, but the autonomy and agency is well worth the effort.
And this is part of a much larger storyline, one that centers around the battle between open and closed systems. The battle between the open source protocols from the early days of the internet and the closed centralized platforms of today’s internet giants.
The only way to chip away at that dominance is to start taking back control of ourselves.
I’ve written here many times about how much I value reading and continual learning. It appears, to me at least, that their benefits are self-evident.
However, the opposite is equally, if not more important. The capacity to unlearn or adapt in the face of new information is critical.
When I was in high school, my basketball coach told me that the form of my jump shot was all wrong and should be corrected. After a few weeks of practice and a few games where I couldn’t make a shot, I went back to the old form. I wasn’t willing to put in the hard work and deal with downsides of short-term frustration.
While I spend a good amount of time thinking about what subjects to go deeper on and what sources of information warrant my attention, I likely don’t spend enough time on the opposite. I plan to change that.
My Latest Discovery
Every year Mark Zuckerberg announces a personal challenge to learn something new. Here’s his challenge for 2018.
I’m not sure Facebook can be fixed because the necessary fixes would most likely run perpendicular to the core business model.
That said, Zuck has done a lot of things right and there’s a fair amount of evidence pointing to him being pretty competent, so I’m not sure I’d bet against him at this point.