This is a very short-sighted view, common to many companies. The BEST way to satisfy the stockholders is to create a fantastic product that users love, long-term. Example: Amazon.

Unless your primary interest is creating a short-term bubble and profiting before it pops, which seems to be the mentality of many investors and companies these days.

I don't like that attitude. I'm not looking to get rich quick. I'm looking to do cool and interesting things. And if I get richer in the long term, all the better.

In other words, you agree with me that a publicly traded company must make decisions that benefit the stockholders. You just think that "benefit the stockholders" should be evaluated on a long-term basis, not a short-term basis. But there are two key points that you have not mentioned:

(1) Creating a fantastic product that users love benefits the stockholders to the extent that users are a source of revenue. In Amazon's case, they are, directly; revenue comes from users coming to the site and buying stuff. (And from buying services like Amazon Prime.) In FB's case, users are, at best, an indirect revenue source: more users spending more time on FB means more ad revenue. That's a much weaker link between a good user experience and stockholder benefit.

(2) How long-term the calculation of "stockholder benefit" should be depends on the stockholder's time horizon. If I'm investing in a company as a means of giving myself retirement income in 30 years, obviously I'm interested in the company's long-term health, not the next quarter's returns. But if I'm investing on a shorter time horizon, I'm going to want benefits to show up more quickly.

Half a century ago, most stock ownership was by individuals, so the scenario of someone buying shares in, say, IBM and holding them until retirement was actually common enough to have a significant effect. But now most stock ownership is by mutual funds; my 30-year retirement income doesn't depend on how any single stock does for 30 years, only on how my mutual fund does over that time horizon. Mutual funds trade individual stocks all the time based on short-term performance, so to the companies, it looks like everyone's time horizon is a lot shorter, and they act accordingly.

I'm not looking to get rich quick. I'm looking to do cool and interesting things.

Just to be clear, I am not saying you are wrong at all in having this attitude. I am only commenting on the difference between what you want to do and what Facebook wants to do.

I would buy into this model. Not everyone would, no. But I imagine enough would that it could change their focus. Maybe.

Exactly.

I don't think that's FB's primary interest, exactly: I think FB's primary interest is in capturing an overwhelming market share in social media during the window of opportunity when that market, worldwide, is not yet saturated. But that ends up making them do many of the same things they would do if their primary interest were creating a short-term bubble and then profiting before it pops.

I wish the meme that this is the only thing a public company can do would die. It's not true in any way.

As I understand it these companies do in fact have a fiduciary responsibility to make every move be one that benefits their shareholders. Can you please voice your thoughts on how that is not true?

Now, for a public company, lots of investors base their decisions on the GAAP numbers companies are forced to report, so there are incentives to improve those numbers each quarter if you want to boost stock price. But if you communicate a long-term strategy to investors and seem competent enough to pull it off, you're Amazon and your stock price does well anyway, even if you lose money.

There are many things Amazon could do to transfer cash from their customers to their shareholders. Bezos justifies not doing these things because he claims there is more value in long term customer loyalty and trust. Because it's a good faith business decision, I don't see Bezos being ousted or sued by shareholders.

Likewise, it would be easy for Facebook to say "we think there's long term value in delivering the best possible experience to users, and if for some users that means using an extension that's fine with us" - it's a good faith business decision, why would they get ousted or sued where Bezos hasn't?

[1] http://www.slate.com/blogs/moneybox/2013/01/29/amazon_q4_pro...

It would be easy for them to say it, but first they would have to believe it, and second they would have to believe they could convince investors of it.

it's a good faith business decision, why would they get ousted or sued where Bezos hasn't?

It's not a question of being sued, it's a question of having the stock price go down. Investors don't have to sue to do that; they just have to sell.

You're moving goalposts. That's a completely different statement. Whatever it is they truly believe is totally different than "they have to make decisions that benefit their stockholders or they will go bankrupt".

> It's not a question of being sued, it's a question of having the stock price go down. Investors don't have to sue to do that; they just have to sell.

Again, this has nothing to do with fiduciary duty, which was the topic that the original comment was responding to. The fact remains that for-profit companies do not have some kind of Sword of Damocles hanging over them, waiting for them to make a decision that costs stockholders value.

How is this relevant to what I said in the particular statement you were responding to here? I wasn't saying anything in that statement about what FB does believe; all I was saying is that, judging by their behavior, they don't believe that "there's long term value in delivering the best possible experience to users, and if for some users that means using an extension that's fine with us".

As for what I think they do believe, see below.

this has nothing to do with fiduciary duty

Which was exactly my point: saying that FB won't get sued if it lets third-party developers change its UI is not at all the same as saying that FB thinks its stockholders will benefit if it lets third-party developers change its UI.

for-profit companies do not have some kind of Sword of Damocles hanging over them, waiting for them to make a decision that costs stockholders value.

I wasn't saying they do; nothing in what I said requires that a single decision is all it takes. I didn't specify any time frame in which FB has to benefit stockholders or go bankrupt. If you read other posts of mine in this sub-thread, you'll see that the strategy I think FB is following is not one aimed at maximizing short-term return on capital, but that doesn't change the fact that they have to benefit stockholders on some time horizon that is relevant for the stockholders.

Can this meme die too?

http://skeptics.stackexchange.com/questions/8146/are-u-s-com...

Care to elaborate? This is pretty fundamental to almost every single business I have ever heard of...

The "maximize shareholder value" chant is a piece of MBA dogma that, although accepted by many as an immutable law of the universe, is a relatively recent American invention. It's not a law, managers don't go to jail if they don't do it, other countries do it differently, and we used to do it differently as well.

Many make good arguments that it doesn't even work very well. American car companies are a good example. Thomas Murphy, a president of General Motors said, "GM is not in the business of making cars; GM is in the business of making money." Carmakers like Toyota, on the other hand, focused on making cars very well (and making customers happy), and kicked Detroit's ass. (The book Toyota Kata and the TAL episode NUMMI give good intros to why, and why it was the philosophy of American carmakers that prevented them from adapting.)

The problem with focusing on maximizing return on capital is that there are a zillion ways to make those numbers look great in the short term while screwing the company in the long. But hey, by then, everybody has cashed out. Except the suckers, and who cares about them? As an example, see what the MBA dogma did to Simmons Mattress: http://www.nytimes.com/2009/10/05/business/economy/05simmons...

They have many people who have invested their lives creating this company. They want their payout. If they have to create a bubble to get it, that's what they are going to do. They'll get their cash, you can bet on that.

I didn't say "maximize shareholder value". I said FB has to make decisions that benefit their stockholders; that's not quite the same thing.

Also, as I pointed out in another subthread, there's a big difference between a company that gets revenue from users directly (like Amazon, the example brought up in that subthread--or like a car company) and a company whose users only generate revenue indirectly, as FB's users do (through ads). The latter kind of company has a much weaker link between benefiting users and benefiting shareholders than the former does. I've outlined in other posts in this thread the strategy I think FB is following, and it's not a strategy that's focused on maximizing their short-term return on capital, but it still makes them act in ways that make at least some subset of their current users dissatisfied.

Citation needed.

Also, this is a false dichotomy. Nobody is splashing patchouli on their tie-dyes before marching on Menlo Park to demand that Facebook's servers be liberated for the masses.

The only dispute here is whether Facebook's short-term fixation on control is bad for the long-term health of their ecosystem, which is by far the company's largest asset.

But what is FB's "ecosystem"? Is it just their current users? Or is it all their potential users, including those who do not yet use FB at all? I think FB believes that it's the latter, and that it can capture the most value from all those potential users by exerting tight control over the FB user experience.

More precisely, I think FB believes that the costs of exerting tight control over the FB user experience (i.e., the discontent it causes among some fraction of existing users) are far outweighed by the benefits of capturing as many potential users as possible and making them stay within the FB walled garden. To capture new users, the UI doesn't have to be good; it just has to be good enough, and "good enough" to someone who hasn't yet used FB at all is a low bar.

The real test will come when the market saturates and the above reasoning no longer applies. Based on what other companies in similar positions have done in the past (with Microsoft being the #1 example), I don't expect FB to loosen control very much, and to the extent they do, it will be, as I said in another post in this thread, more to allow third party developers to do market research for them than anything else. But we'll see.

It is interesting to think about today's big tech companies and how they make a majority of their money.

Facebook, Google, and Twitter = advertising. Microsoft = software. Apple = hardware.

Of the three companies who make most of their money from advertising, Twitter seems to be the most ethical, although going public might change that (Facebook is creating profiles of non-Facebook users and it wouldn't surprise me at all to find out that Google is creating profiles of people who email Gmail users but don't have Google accounts).