I’ve been spending a lot of time lately contemplating the subject of my previous two posts (see here and here), and issues associated with breaking down a business or a product into its basic features or components, and directing these towards the most efficient profit target, which may or may not be the originally designed business or product. The idea began with Fred Wilson’s blog a few days ago, in which he suggested that traditional media’s most valuable asset is its local sales force, and that the industry may be well served to use this asset outside of the primary newspaper or broadcast advertising sale. Coincidentally, another article hit the wires this morning, summarizing an interview with Eric Schmidt, in which the Google CEO proposes that the critical mass of journalists and other writers on the payroll of newspapers are a tremendous asset for these companies that should not go to waste. Similar concept, different source.
Then there was also this blog post from a Twitter app developer, suggesting that Twitter should create a business model in which independent Twitter “partners” (for example, StockTwits?) would use the Twitter platform to generate customer revenue, sharing this revenue with Twitter as the platform provider. This too would seem like a move in that same direction, that of specialization, segmentation, purposing or repurposing core assets for their most efficient and optimal economic outlet.
Switch back now to this approximate time last year, when the financial community at large was frantically introspective, trying to understand what was happening in the fourth quarter of 2008. Some of us saw the issue as one of inadequate fundamental value in our economy, providing only limited support of financial value, so that a gap between the two became the essence of the market bubble that had burst. While the market decline and economic crisis were being addressed with infused liquidity to the system, a case could be made that this did not address the more important issue, that of fundamental value creation at the asset level, (whether this asset is a business or a home), and many economists remain concerned about this very problem. This is by some called inflation risk and by others the risk of another bubble in the making.
Now, what if a different trend should emerge, one of fundamental value creation that comes with the unlocking of hidden value in a variety of businesses (such as some of the examples cited above), repurposing components of such businesses towards their most efficient use? We’ve already seen a few instances in which such redirection could take place, and there are undoubtedly many others. Should such a trend emerge, we may have less reason to be concerned about bubbles, inflation, and a variety of economic risks associated with insufficient substance.
