Innovations have high interest with low revenues4/23/2014
Innovation and disruption are the lifeblood of the tech industry. Innovation is the inventive process that has forced evolution onto countless industries. For instance, VHS replaced by DVDs, then Blu-rays, and now online streaming, with each step along the way disrupting the peaceful tech status quo preceding it. As exciting as disruption can be, there is a definite dark side to continual success in innovation: expectations of profitability.
Consider Google’s latest stockholder earnings report: In the first fiscal quarter of 2014, the search engine giant earned $15.42 billion — astounding by anyone’s standards — still Google’s stock took a 5 percent dip, as it didn’t reach its projected earnings of $15.52 billion. Certainly coming up short $100 million is nothing to scoff at, but the underlying issue of profitability in the tech industry is notable.
Before companies such as Google, Facebook, Apple, Twitter and LinkedIn became publicly traded companies, the driving force to their innovation was the creation of better services and tech instruments — monetization and profitability were afterthoughts. Company valuations were based on the potential promise of riches, should they go public. After joining the stock exchange services, and innovation takes the back seat to revenue. Investors no longer cared as much about what you do, but rather how much money you can make from it.
The most recent, and potentially best, example of the curse of success is Twitter. Entering the Nasdaq stock exchange this past November, Twitter was not profitable. Since its stock debut, the company has upped its advertising, changed its interface to look more like its competitors and just barely squeaked out $10 million in profit. The demand for revenue forcefully altered Twitter’s unique microblogging format into a diverse multimedia platform that more closely resembles Facebook and Google Plus.
Is profit tech cancer? Not quite, otherwise Google, Microsoft, IBM and Apple would have died out long ago. Still, for every Silicon Valley that continues to successful innovate under the whip of the stockholders, there are plenty that falter. I’m talking about you, Hewlett Packard, Blackberry and Yahoo. CV
Patrick Boberg is a central Iowa creative media specialist. For more tech insights, follow him on Twitter @PatBoBomb.