" In the Old Days..." : Michael Bloomberg on E-Commerce
Anyone who has read Michael Bloomberg's autobiography, Bloomberg by Bloomberg, will know that Bloomberg, founder and CEO of Bloomberg Financial Markets, has an opinion -- on everything. Irascible, self-promotional, but eminently pragmatic, Bloomberg calls it like he sees it.
It was no surprise, then, that his keynote address at the Third Annual Wharton Entrepreneurship Conference on November 19 began with the following admonishment: "I assume that all of you think entrepreneurship equals something 'dot com.' Well, at my company we hire people faster than we spend money on technology -- and we have something called revenue and profit."
Very Bloomberg. In fact, those who have followed Bloomberg in the press would know that he has a dim view of the future of e-commerce as it currently exists. For some, that might seem strange for an individual who has built a career on technology: The Bloomberg box, a computer terminal dedicated to the transmission of real-time financial data for bankers, government agencies, and news organizations, is used in more than 60 countries, and Bloomberg Financial Markets has become a global distributor of financial information services. But Bloomberg's reservations about the current trends in e-commerce do not involve the technology per se; they have more to do with a certain nostalgia -- a nostalgia for the days when companies were built on capital, marketing was secondary to quality of product, and people really worked.
"I don't want to say that the Internet stock market is over- or underpriced," Bloomberg explains. "It's just a different market." According to Bloomberg, the difference lies in the fact that the earnings potential of high-tech start-up companies is uncertain -- that there are too many unpredictable variables.
"Today, you don't need to talk with financial analysts. You need to know what 'the buzz' is. You need to talk with psychologists and market theorists to understand what may happen with a given company. And you need a diverse portfolio," he says. "It's like the art market -- there's no intrinsic value in the paint or canvas, but a painting can be worth a lot if it's on the right side of the trends."
For Bloomberg, building a business soundly means doing it the old-fashioned way: identifying a need and then asking yourself what resources you have to fill that need. "In the old days, the objective was to make the most money you could at the lowest cost. But today, people believe they can start a business and not need to make money. The object is to get your stock to jump as high as possible. As a result, we're all in over our heads."
This has led, Bloomberg argues, to a world in which marketing -- not product -- is the priority. The Internet has enabled more people to create businesses without a great deal of capital, and it has also allowed that competition to spread beyond geographical boundaries. As a result, there is almost no time to focus on building a quality product.
"When Bloomberg was started," he says, "we had the breathing room to create a good product because we didn't have any competition developing alongside us." Today, he says, so much competition exists that marketing and publicity are the only way consumers can distinguish between products. "Never before have so many companies been trying to build a brand at once, with so many imprints hitting customers' eyes at once," he adds.
But, as Bloomberg points out, maintaining a brand is more expensive than creating one. "Transferring information is not the hard part," he says. "Raising capital, producing a product, and running a company -- that's where the effort is."
These fundamentals, according to Bloomberg, can pay off when web technology is added to them, but he believes that they are commonly subordinated to the superficial aspects of building an e-commerce brand. Ultimately, he believes, such businesses will have weak foundations. "It'll be the revenge of the bricks-and-mortar stores," he says, and then adds, "Hey, guess what? You may actually have to work!"
The 'buzz' surrounding these companies has created another problem in Bloomberg's eyes: It has undermined labor loyalty. "Companies need stable workforces and managers with experience. But everyone wants to be a billionaire," he says, referring to the tendency of employees to jump ship when lucrative stock option packages are offered. "People need to be realistic," he says. "These companies have the public and their employees psyched up, but they can't deliver."
Calling employee stock options "voodoo economics," he warns against taking such packages in lieu of actual compensation. "You can't sell them," he says. "They want to know how they can pay you off the balance sheet. What company really wants to help you more than itself? I don't know of any."
When asked if Bloomberg has lost employees to Internet companies offering stock packages, he admits that he has. "We won't hire them back," he says. By not doing so, how will people learn to avoid such pitfalls, he is asked.
"Oh -- they'll learn. And they'll teach a lesson to everyone who stayed too!" he retorts. Very Bloomberg.