What we think of as value has gone a fundamental shift in the last couple of decades. Traditional “Blue-Chip” stocks have always been companies the produced something physical or offered a clear service. However, that notion is changing.
Google gets most of its value from information. It offers services for free in order to get more information from consumers. Then all it does is sell ads. Well, it’s got a few other income streams, but a large majority is derived from ad sales. It’s just extremely accurate in the ads it sells. Is it strange that one of the most innovative companies in the world that offers great technologies to everyone for free is really just a large ad sales company?
Well, that could be derived from anthropological reasons. Historically, people only sold physical objects. Songs and stories couldn’t be copyrighted because they belonged to everybody. Intellectual property was a difficult concept to wrap your head around. If you sold a chair, why couldn’t someone else make a chair with the same design?
This really isn’t so different from other business models that offer something free in hopes of being able to make money of you later. CD and book clubs used to offer the first few items at an extreme discount to get people onboard, and then charge much more. Food producers often give the first item free in hopes that you’ll buy more. Restaurants offer happy hour specials to get you in the door and then hopefully sell you some appetizers or full meals.
What’s different today is that it’s intangible. Free services in hopes that you’ll click on ads that are targeted right at you. It seems like a great way to go broke. But Google made it work. Additional information is always useful, and can give quite an advantage to people. However, we still aren’t used to thinking of it as an asset that you can make billions of dollars from. There’s a reason libraries don’t sustain themselves, right?
In this information age, we have to recalibrate how we view value. If a company is able to take existing information and create insights into it, then it’s got an asset. If it can make money off said insights then they’ve got a good asset. It’s a bit unnatural to view companies this way, but it’s something to begin to think about as our economy continues to advance.