Unfortunate but Unsurprising Suboptimization in Silicon Valley

Don’t Google and Amazon Read Businessweek? At least Google has the excuse that they were born and grew up in Silicon Valley and have always lived here. So it may be instinctive for them to keep on wanting to out-Silicon-Valley Silicon Valley. As for Amazon, Jeff Bezos’ historically bare bones operating philosophy has apparently changed if he now wants to pay big bucks for the facilities and staff in Silicon Valley.

Even worse, no other than the CEO of Silicon Valley Leadership Group who was just given accolades by the San Jose Mercury News may be one of the villains. Although Carl Guardino wants to “exorcise the twin demons of housing shortages and traffic jams” he appears to be focusing only on the traffic jams part. (This, in turn, may be due to the fact that he commutes to work by bike 17 miles each way, from tony Monte Sereno to the airport. He may actually get to work faster that way than by car, but Google Maps shows one hour and twenty minutes, though there are fortunately two alternatives that are trails. The third is via an expressway, which is not cyclist-friendly.) He apparently expects somebody else to deal with the housing shortage, a poignant example of suboptimization. (Interestingly, the definer of suboptimization is a San Joe State professor, who no doubt has lots of local examples to cite.) Apparently HE thinks that having fast transportation allows people to live farther away, where housing is affordable. WE think that the proposed “Google transit village” (that puts 20,000 Google employees in offices adjacent to Diridon Station) will be a nightmare because it puts too many eggs in one basket. And if you want to know what Silicon Valley residents REALLY think, have a look at the Comments accompanying the article about Carl Guardino.

Another consideration is that past experience regarding the preferences of high-tech company employees is that managers have families and prefer to live toward the San Jose end so they can have grass to play on, whereas single guys writing code prefer to live in San Francisco so they can party. Where will the party scene shift to? Will hungover software engineers want to commute from San Francisco to Diridon Station on BART? And can their bosses afford to live in closer proximity to Diridon Station? Houses in nearby Sunnyvale are selling for nearly $800,000 over their asking prices.

What about Amazon? While those with vested interests—politicians, city planners, tax assessors, etc.—are positive, knowledgeable local residents (and newspaper columnists) are not. Maybe Amazon’s own planners and cost accountants will horrify Jeff Bezos so much that he will choose some other city on the Businessweek pictogram who will appreciate him more and charge him less. Or maybe he will get creative with a twist like the giant factory towns in China, which have dormitories and apartments and stores, and propose to build giant apartment buildings to overcome the housing and traffic challenges.

Sears Roebuck Invented Mail Order, but Amazon Ate Its Lunch, and Now Brick & Mortar Retail Suffers

Sears Roebuck was a hot stock when it held its IPO in 1906, and ninety years later its shares had grown 434,552 percent. But by 1973, when it opened the Sears Tower (at that time the tallest building in the world), it apparently had lost all or most of its entrepreneurial instrincts, and it let Amazon get started in 1994 and overtake it, apparently without any counter-offensive.

But Sears isn’t the only retailer who missed the resolutionary changes in retailing. Most department store chains are suffering from changes in people’s tastes and how and where they shop. And many shopping malls are shadows of their former selves. It will be very interesting to see if Amazon can innovate in the grocery category.

Big Brother Is Watching, and Helping, You Shop

The incessant march of technology brings not only improved convenience but also often-scary invasion of privacy. “Big Brother” can now track your in-store habits, urge you on with stuff he already knew about you, and bill you without a checkout line. According to research conducted by the University of Pennsylvania’s Joseph Turow, the same sort of surveillance of consumers that occurs when they shop (or do anything) online is now occurring when they shop in bricks-and-mortar stores.

And Amazon, not content to sell only books and other inorganic items, is trying to expand into the giant groceries business. While some categories of products can be sold online in the same manner of non-grocery items, fresh produce and other items for which consumers want to get up close and personal with them cry out for nearby stores. One of Amazon’s innovations is to embed products with tracking devices that charge customers via their smart phones, thus eliminating the annoying wait in checkout lines and the cost of cashiers. Not all the bugs have been worked out yet, but when they are, stores like Trader Joe’s better watch out.

Is Amazon the New Apple?

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Will Apple topple from its perch as the world’s most valuable company? The stock market didn’t reflect Apple’s declining smartphone sales far enough ahead, which led to a drop in share price when year-over-year Q1 iPhone sales declined nearly 15%. And while the overall market grew about 4%, leader Samsung stayed flat, and a handful of Chinese companies rose ominously. Apple’s reliance on the iPhone for growth has become a weakness.

But there is another important consequence. If you look at total market capitalization (total shares times share price), Apple is declining rapidly and Amazon is rising rapidly. For the last 3 calendar quarters, the top 5 companies in the world have included only Apple, Alphabet, Microsoft, Amazon, Berkshire Hathaway, and Exxon Mobil, and the top 3 were only Apple, Alphabet, and Microsoft. But Apple’s market cap(italization) in 1Q2015 was more than double ANY other company, while in 1Q2016 there were 7 other companies with market caps over half of Apple’s. But In 1Q2015 Amazon was not in the top 10. It was #10 in 3Q2015, and #4 in 1Q2016 (getting profitable helped a lot). And Amazon is not dependent on one product line.