Rob Dolin's Blog

Thoughts on technology, politics, non-profits, and their intersections; and food

Goldman Sachs resignation letter, misalignment of incentives, and implications for $AAPL $FB $GOOG and $MSFT

Today’s New York Times ran a resignation letter from a (now former) employee of investment banking giant Goldman Sachs.  Twelve-year employee Greg Smith describes his reason for leaving:

To put the problem in the simplest terms, the interests of the client continue to be sidelined in the way the firm operates and thinks about making money. Goldman Sachs is one of the world’s largest and most important investment banks and it is too integral to global finance to continue to act this way. The firm has veered so far from the place I joined right out of college that I can no longer in good conscience say that I identify with what it stands for.

This misalignment of incentives between what is best for Goldman Sachs clients / customers and what makes the firm the most money seems to be the problem; and the firm has swung too far toward making itself money instead of doing most right by their customers.

Looking at some of today’s tech titans like Apple ($AAPL), Facebook ($FB), Google ($GOOG), and Microsoft ($MSFT), there seems to be similar potential for this misalignment to warp priorities.  Consider:

  Product users Who pays
Apple Mac, iPhone, iPad, and iPod users Same
Facebook 800 million + social networking users Advertisers
Google Hundreds of millions of search users Advertisers
Microsoft Hundreds of millions of Windows users Same

Apple and Microsoft are companies that make and sell products.  Whether it’s hardware + software (Apple) or software (Microsoft), these companies make products that the users pay money to own and use.

Facebook and Google are companies that sell the attention of their users to advertisers.  Their users pay no monetary cost to use the service.  The cost (and profit) comes from advertising revenue.  While it would be ideal for these advertising-funded web services to remember that they only can sell advertising if they have users, James Whittaker suggests that in the user vs. advertiser battle at Google, the customer is losing:

The Google I was passionate about was a technology company that empowered its employees to innovate. The Google I left was an advertising company with a single corporate-mandated focus.

Considering the current challenge monetarily free web services face of pitting their revenue stream (advertisers) vs. their true customers; I wonder if a launch of web services where customers pay for the service rather than advertisers paying for the service could help to right this misalignment.  The key challenge seems to be: How much would you pay for Facebook or Google; or what about Twitter or your blog? 



Filed under: Technology

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