What Salesforce is Selling (and Buying)
Plus! Multilateral Vaccine Diplomacy; State Capacity Straussianism; Bicameral Diplomacy; Chip Insourcing, Slowly; Password Price Discrimination
Byrne Hobart | Mar 12 |
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What Salesforce is Selling (and Buying)Plus! Multilateral Vaccine Diplomacy; State Capacity Straussianism; Bicameral Diplomacy; Chip Insourcing, Slowly; Password Price Discrimination
This is the Friday free edition of The Diff, the newsletter about inflections in finance and technology. The free edition goes out to 20,750 subscribers, up 139 since the last edition. In this issue:
What Salesforce is Selling (and Buying)Last week, I wrote about IBM, which was the center of the computing industry for decades because it mastered distribution. For most of my lifetime, "Who is the next IBM?" has meant "Who is about to be crushed by a shift in where value gets captured?" but for a long time before that, "the next IBM" was what growth investors were praying they'd find. The IBM model during its peak was:
Palantir (written up in The Diff here) sounds a bit like this, but the company is still in its rapid growth stage. And Palantir’s distinctive culture also makes it hard to compare to other companies—although IBM's old culture, with its corporate songs, might come close. Salesforce, on the other hand, fits all three. Just like the name says, it has an excellent sales team. Its products produce recurring revenue, and opportunities for expansion. And Salesforce has developed a model for finding new products and improvements on existing ones, albeit different from IBM's: Salesforce can grow by building new products, by promoting third-party integrations, and, increasingly importantly, by acquiring companies whose weaknesses are complemented by Salesforce's strengths. It would be reductionist to call Salesforce a purely sales-driven company; their CEO heir-apparent co-created Google Maps, founded Friendfeed, and was the CTO of Facebook. But it's undeniable that Salesforce has been able to grow in part by acquiring good products, integrating them together, and ramping up distribution. As larger companies use more individual pieces of software, plugging them into each other turns into a bigger deal—both Dropbox and Box, for example, tout their third-party integrations as a key selling point. Salesforce has been able to systematize this process, which puts them in a position to acquire companies that are better at product and technology than they are at sales, and then make them, by default, good at all three. A Word From Our SponsorsDiff readers want to know everything worth reading in finance and technology. But some of us want to know everything that’s worth reading about everything. The best place to start is The Browser, a curated newsletter of five fascinating stories each day on every topic imaginable, from how Aztecs thought about pandemics to how novelists write from the perspective of chickens. I’m a regular reader, and The Browser has featured a few Diff pieces in the past. I encourage you to sign up here—Diff readers get 20% off your first year with the code DIFF20 at checkout. ElsewhereMultilateral Vaccine DiplomacyChina, as Tyler Cowen once noted, has the financial and research resources of a rich country, but the risk tolerance of a poorer country. This, along with China's vigorous response to the initial pandemic, has given them the opportunity to distribute its vaccine according to different priorities than most places; it would be reasonable, for example, to think that the US, rather than China, would be the country sending doses to the US's geographic neighbor and close trade partner. But this is changing, in part because the US collectively with its allies has the resources of a very rich country, and any effort to vaccinate everyone in the country will lead to plenty of spare capacity that can be redirected elsewhere: America and Japan are funding 1bn doses, to be made in India and distributed by Australia ($, FT). In related news, The Economist had a great profile of India's Serum Institute last week. State Capacity StraussianismTyler Cowen argues that vaccine passports should be created, but not legally enforced. His basic argument is that the existence of a vaccine passport encourages otherwise-reluctant people to get shots, but probably couldn't be effectively implemented. This kind of policy approach—announce something that won't work, but whose existence alters behavior in a way that improves outcomes—can be effective for a short time. But every attempt to do it makes the next one less effective, because people slowly acclimate to the idea that these projects are ineffective. The effectiveness "Straussian State Capacity" is a function of perceived state capacity, which itself is based on actually getting things done. Bicameral DiplomacyJordan Schneider has a great interview with Adam Tooze and Matt Klein, mostly on China and analogues to earlier history. A particularly interesting point from Adam:
This is a good way to divide up global institutions. As a rule, if those institutions weight countries' influence by some measure of size and importance, they'll tend to cater to the interests of established players; if they're unweighted, they cater to the interests of whoever is mostly willing and able to game the system, which usually means rising players. Looking at Russian and Chinese policy in Africa in the 60s, and China's policies there today, as a way to pack the UN might be extreme, but that is part of what's going on. It's sometimes quite affordable. Chip Insourcing, SlowlyThe center of gravity for the chip industry has slowly converged on Taiwan and South Korea (see my earlier writeups on TSM ($) and Samsung ($)). Other countries are trying to move it back, or spread it out, with the EU and US discussing subsidies for local production. Meanwhile, though, Dutch chip equipment manufacturer ASML is hiring more workers in Taiwan ($, Nikkei)) to get closer to its biggest sources of demand. And the Texas power outages have cost local chip companies, including Samsung, an unknown but large amount of money, and might put Samsung's future expansion plans there at risk. The short useful life and delicate equipment of chip fabs makes reliable power especially important—if it takes weeks to restart after an outage, that's weeks of depreciation in the value of billions of dollars in capital equipment. Meanwhile, smartphone maker Oppo says that chip shortages are the new normal ($, Nikkei) due to rising demand. It's possible that shortages will continue in the future, but supply, rather than demand, seems like a bigger driver: the chip industry has gone through long periods of rising consumption, but as the capital cost of individual fabs rises and the number of companies capable of making cutting-edge foundries shrinks, production changes increasingly follow a step-function pattern. Password Price DiscriminationFor a company that is obsessed with tracking user-level data, and that has to be keenly aware of the ins and outs of data transmission because it's one of the single largest bandwidth consumers, Netflix has always been oddly unwilling to enforce its one-household-per-account rule. The reason, of course, is a combination of marketing and price discrimination: there are people who are individually willing to pay a bit less than what Netflix charges, but who wouldn't bother at full price. And there are people who convert from free subscribers to paid subscribers when their ex changes a password. Netflix is now discouraging password sharing. It's still possible to share voluntarily, albeit with some friction, but this will reduce some free-riding. And while the effects will show up in Netflix's subscriber count, it's really a measure of the company's pricing power. The stated price of Netflix was always a ceiling, and the number of paying subscribers was a floor on the number of active viewers. Now those numbers are converging with reality. You’re on the free list for The Diff. For the full experience, become a paying subscriber. |
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