Is it possible that it is simply because of survival? The general theme of business I see is if you do not keep up with others, you will lose to your competitors. Especially in a winner take all business with network effects and low marginal costs like tech.
Most businesses in the world survive with their piece of the pie and remaining having the same profits or slightly lower/higher than previous years. You don't disappear over night, and no market is really a "winner takes it all", it's just what management wants you to believe so you fight the good fight for your company.
I am not sure if that is called survival.
And no, most businesses in the world do not survive that long. Lifetime of businesses are often much shorter than lifetime of humans. Even many of them that look like have survived may share the name only and are effectively new businesses.
With a gross profit of 100 billion dollars a year [1] they can easily outbid the market compensation if they want to and stay with current revenue. But again how many Jeff Deans can one company need before it calls itself The Man?
[1] https://www.macrotrends.net/stocks/charts/GOOG/alphabet/gros...
Companies are not paying with RSUs because of a tax advantage, they are paying because it is cheaper than paying with cash.
Scenario A: Company X gives me a sign-on bonus of $10,000 and an agreement to bonus me $100 * y%, where y is the increase in value of the company.
Scenario B: Company X awards me $10,000 of RSU that vests after 1 year.
Let's say I'm in the highest bracket, $523,601 or more in income. The tax rate for that bracket for 2021 is 37%.
After 1 year, the stock price goes up 100%.
In Scenario A, I have vested RSU's worth $20,000. If I sell $10,000 of that (the gains only), I pay short term capital gains equivalent to my tax bracket, or $3700. If I hold that stock for 1 year after vesting and the stock price stays exact same for the next year, I pay the long term rate of the highest bracket which is currently 20%, or $2,000.
In Scenario B, I get a bonus of $10,000 just the same, but there is no situation where I'm not stuck with paying $3,700 on that $10,000 gain. In Scenario A, I can save almost 50% of the tax bill by holding it for a year.
It can also be a cash flow problem if you have to cover quarterly estimated tax in between trading windows. My day job sells and withholds 22% of my vesting RSUs, because that’s the statutory rate for supplemental wages, but I always owe about 10% more.
This assertion presumes that it is impossible to propose any form of compensation that's enticing without involving stock. This is not only baseless but also flies in the face of reality, as other tech companies, including other FAANGs, barely offer any stock and still manage to attract top talent.
Which one?
Netflix is also 20% of FAANG companies, so that's not as lonely as it sounds.
Plus, your competitors are not sitting still. People will go work for the more exciting companies even if you pay them equal amounts anyway (to vary their type of work and grow their careers) rather than staying and watching the thing die and doing the same thing for 30 years.
There are companies out there, private ones, where their customers are happy, their employees are happy (most of the time) and their retention is high.
Ambitious, hard working people like promotions, so they gravitate towards growing companies and not stale companies.
Ambitious maybe (though that's nearly the definition of ambitious). Hardworking, not necessarily. I know a cement guy that you have never in your life worked a harder day than who has never received a promotion nor even sought one.
Companies that aren't growing? I meet A LOT of companies (about ~50 or so a year) and I can tell you there is massive difference between the distressed ones and the ones who are growing. btw - even 2~5% growth is fine, it doesn't need to be 25% google scale growth...but flat or declining is bad.
Businesses are valued based on discounted cash flows (DCF). If you're profitable and not growing, your cash flows are very stable & easy to evaluate -- you get a low P/E or P/E/G ratio. But if you're growing quickly with sane unit economics, most of the DCF value is in future years... which then results in much higher multiples relative to today's revenues & earnings.
Not the company, unless selling stock to raise cash.
Not the employees, if paid in cash instead of funny money.
Nobody needs that.
It's cultural.
People see other people’s wealth growing quicker because their investments grew more, increasing demand for higher growth investments.
Population growth inherently leads to economic growth assuming a sufficiently stable society and access to resources.
All of these create an environment where people expect certain ROI and make plans according to those ROI.
So, what to bonus the CEO on? Stock price appreciation. Stock price valuation loves growth. So even though a flat business throwing off 10% profit is a very nice business to be in, the only way you can increase stock price is to grow margin, which is really hard and attracts competition. Ergo, CEO is going to try to grow the company to boost the stock price. That's one reason dubious mergers are pursued, as it at least will goose revenue and profit. Wise investors might use return on equity or capital as well, but the market in general biases towards the revenue and profit metrics. Stock goes up, CEO gets their bonus.
For a private company, slow or flat growth with a nice profit margin is great, and without having to favor growth at all costs for pesky stockholders and analysts, you can pick and choose when a good opportunity comes along, and grow a bit anyway.
Everything a capitalist market teaches us is against this, if they don't obsolete themselves before somebody else can then they will fall into obscurity and ultimately lose what they've built, just like other companies before it who didn't.
FAANGS companies aren't at fault for when they're winning a game which is rigged from the start.
And if they do fall into obscurity and ultimately lose what they've built?
- The companies who take their place service the customers/clients they used to have
- The workforce either coast along or move to the (presumably growing) new big boys
- The investors should spot the decline and trade away
The only downside is the company - the brand - slowly dies off. For most of us that is fine; the only parties to all this who will actually lose out are the ultimate beneficiaries/owners, and I can live with that. And presumably they've extracted masses from the company by then anyway.
Its both cultural and economics, but the economics only affect the masters and not the minions (who find alternatives) and the cultural aspect is misguided - individual companies/brands are ephemeral and irrelevant so we the minions should not be invested in protecting them at the destructive (to society) costs of scale.
While this may be the case for capital-intensive businesses (oil, consumer goods, energy), this is usually not the case for intangible-asset businesses (media, tech). In the former, the assets will generate cashflow, whereas in the latter it's a people-centric model
What was the last time you chose yahoo over google or altavista over google?
Google was always greedy, but when it was small it was cool to be the disruptor. Now it's perceived as only greedy. This is typically the case for any successful company (from HP, IBM, to the new 'big tech').
Good (related) book recommendation btw: capitalism without capital
Market for OSes for PCs (not Macs) is a great example. Windows has what, 98% market share there? It got there thanks to the dynamics of this particular market, which is totally a "winner takes all" one. In particular, if Microsoft were more relaxed in 80ties and 90ties, there likely would not be Microsoft or Windows at all today, and everybody'd be using Os/2 Warp or BeOS or something else on our PCs.
If you slice the market thin enough anything can be a monopoly. This particular distinction seems pretty arbitrary to me.
No such thing. In capitalism you are either growing or dying. Stagnation means others will grow around you, and relative to them you are shrinking in the same market. Thus, stagnating == dying.
[1] https://medium.com/hps-insight/on-short-termism-8e28fbe4ccc6
that's why we have public benefit corporations.
Are these business in industries with fierce large competitors? If not, it's an unreasonable comparison - they are only not getting eaten because nobody's trying to eat them.
I love small and medium businesses but just making a game theoretical point - you can only chose to limit your competitive effort to the extent that nobody is increasing theirs.
However that is heavily industry specific and in tech, where scales are very different only works for very small niches.
I thought it was for the total value exchanged?
Indeed as one of the richest countries, with global climate change, the responsibility is to lower consumption (which many would see as reduce the standard of living). But maybe the analogy doesn't stretch that far.
If it was common, then they would not have gotten to be the richest country in the world in the first place. The same game plays out over and over in nature where the one that fights for resources gets more of it, and while they can choose to stop fighting for it, in the long run they will not be the survivors.
Cooperation works best if the goal is maximizing the average return over all participants in the game, but inevitably, tribes will split off and start prioritizing their own populations over others. On a global, national, and even familial scale.
It's not hard to imagine a Google that had taken this path, just focused indefinitely on search & search ads, run itself with <1000 highly skilled, highly paid employees, and never done email, maps, docs, payments, mobile phones, video, or and any of the rest of it.
I’d personally probably be happier in a small company than in one that is eternally chasing infinite growth (both in goals and in number of employees).
Besides, junior developers / interns are supposed to do what exactly if there is no increasing revenue at a company and no one leaves above them? Just hang out until someone quits even though they're not going to?
Retraining a junior developer is costly. Advancing them is as well, but less costly than constantly cycling in new junior developers and interns to do the HTML/CSS + ETL script jobs no one likes doing.
Growth is natural and important towards keeping your staff happy and moving up.
Both Basecamp and Valve were growing massively, so I don't think those are good examples.
I'm not saying VC funding is a good thing; I largely think what we are seeing due to massive QE is malinvestment on a grand scale and is why you see dumb shit like Juicero.
But natural, bootstrapped growth is a good thing - and necessary, if you want to survive. Trending sideways is waiting for death on many fronts - your labor force being the largest one.
Besides, if you are paying a good wage, have a good work/life balance, a good environment and so on, people will be content and just work there. It's like farming or factory work - you're doing what you expect to be doing for the rest of your life, or at least the next 10-20 years.
How does this work when your competitor is offering half of compensation via RSUs skyrocketing in value?
>It's like farming or factory work - you're doing what you expect to be doing for the rest of your life, or at least the next 10-20 years.
This describes no one I know that earns a lot of income. I imagine a person that expects little change over 10 to 20 years will probably not be in position to grab opportunities when they present themselves.
They largely abandoned dota 2, and CS is mostly plowing without any sign of major changes.
If steam were not this successful, it would have to hire more to grow revenue. It was just that steam as a platform is so efficient in utilizing manpower, it makes it less hungry on hiring.
Most organization aspiring growth has to find a way. It could be the market is growing, or better tech, or more employee, or more often, a mix of 2 or more of these or other unmentioned factors.
First Chrome, then Android were critical, life-or-death maneuvers for Google. Without paving their own path straight to users’ eyeballs, Google would have never survived. But succeeding in that path also required an entire ecosystem to back it up.
Google also does a lot of frivolous stuff to explore, but all of the major expansions are required just to protect their Search and Ad products.
Anyway, I'm not saying it's what they should have done. What they have done has obviously been wildly successful. But they could have done this and still given hundreds of people full-career employment and generational wealth.
Actually I think they're not in enough danger. They take things for granted, our attention and private information for example. Denying Google, Facebook those should put some real fear in them.
https://www.youtube.com/watch?v=Z93yWXb9Tb0
I do not know what you mean by sympathy, I am just opining on the economic reasons for why successful businesses keep trying to expand, and that is if they do not, then they risk falling behind.
A common sentiment on this forum is that companies who fail to keep challenging themselves and get complacent on rent seeking from one product/service will eventually lose to an upstart.