Comment by etempleton
4 hours ago
My experience in American organizations is that products and services need to not just make money, but make a lot of money. There is zero appetite for things that make a little bit of money relative to the cash cows of the company. You could say this is in part focus, but it is also based on internal accounting. Small product lines are saddled with total company overhead costs even if they do not apply to said product or service. Not good or bad, but it can lead to strange situations where you have a successful product that everyone complains doesn’t make any money.
> There is zero appetite for things that make a little bit of money relative to the cash cows of the company.
The other side of this is only new baby firms invest in that thing that makes a little bit of money. But given enough refinement, that thing starts making more and more money as it gets better and better. And soon, that new baby firm outshines the incumbent. The incumbent's wasn't incentivized to invest in the thing that started off worse but eventually became the new model. Think Kodak with film-vs-digital cameras.
This was the thesis of 1997's The Innovator's Dilemma, written by the guy who coined "Disruptive Technology".
> zero appetite for things that make a little bit of money
For obvious reasons, the expected rate of return needs to clear the hurdle of the risk-free interest rate. This puts a pretty high floor on activity that is "worth doing". This is a mechanism by which the phenomenon of ZIRP diversifies economic activity.
The risk-free interest rate is a pretty low floor for returns though? At least in my experience with expectations of what counts as a profitable project.
The risk-free floor is around 4% these days. Because the return on any other use of capital must be risk-adjusted, the breakeven might be 6-7%. That is roughly a 3x higher rate of return than you needed to breakeven when the risk-free rate was ~0%.
Small absolute changes in risk-free interest rates cause many things to become unprofitable when the relative change in interest rates is large. A risk-free rate of 1.0% and 1.5% are both small but the latter is 50% higher than the former.
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On the flip side if a small part of the company is suddenly making a ton of money, urge investors will demand it be spun off into a separate corporation to “realize its value.”
> My experience in American organizations is that products and services need to not just make money, but make a lot of money.There is zero appetite for things that make a little bit of money relative to the cash cows of the company.
Is your experience in the same America where Meta is losing another 4-6 billion $ this year in AR/VR business unit, after losing 19 billion $ last year. Similar with Google's and Apple's AR/VR unit which also consume a lot of money in R&D(funding a lot of high paying jobs) and not make any money, yet.
So sure, there's no risk appetite for things that make little money, except for all the evidence proving the contrary.
There is zero appetite for things that make a little bit of money, but in big tech there is limitless appetite for things that lose money but might make a lot of money one day.
If it ends up AI only makes a little profit annually in the longer term the whole thing collapses on itself.
>There is zero appetite for things that make a little bit of money
Because "making little money" is a commodity business activity, overrun with competition from Europe and Asia.
So why would you ever want to compete in the race to the bottom of "little money" when you have the highest labor cost in the world? It makes no business sense.
You go into "all or nothing" moonshots because Europe and Asia can't compete there. Especially when you have the world reserve currency as the infinite money glitch cheat code (while it lasts).