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The 9 Most Brilliant (and the 9 Most Disastrous) Business Moves of the Decade

Monday, January 20, 2020

From forward-thinking acquisitions to hare-brained lapses of judgment, these were the decisions that crushed the competition — and the ones that backfired horribly

This was the decade of the pivot, the unicorn, and the unicorpse. It seemed like everyone — from cosmetics retailers to pizza chains — began calling itself a tech company. Yet they do have a point: Tech has redefined everything, ushering in a business world that moves with unprecedented speed. You either disrupt or get disrupted. You’re nimble or you collapse. The bold are both rewarded and punished. Here’s a look back at some of the best and worst business moves of the decade.

The 9 Best Moves

1.Netflix rethought its business model

We’re all so used to bingeing Netflix that we might have forgotten that its CEO, Reed Hastings, made a bold (and, at the time, very unpopular) move back in 2011 to separate streaming from its DVD business. He took another big step in 2013, sending an 11-page memo to employees and investors announcing that instead of just distributing digital content, Netflix would be the maker of it. It turned out to be a smart move: The company’s revenue hit $16 billion last year, up from $3.6 billion in 2012. (The company also had the best-performing stock of the decade, with shares up more than 3,700% over the past 10 years.) Last year, Netflix spent more than $12 billion on content, with the vast majority of that money earmarked for original films and series. Leaders, however, have followers, and the competition — including Disney, AT&T’s WarnerMedia, and Comcast’s NBC Universal — is gunning for a piece of the pie.

2.Amazon bet on voice recognition

In 2011, Amazon executives listened to a pitch for a novel idea: a household appliance thatwouldletyoutalktoitfromanywhere,listentomusic,hearthenews,and,ofcourse, order stuff from Amazon. Many on the team thought it sounded like a huge amount of work to build, but Bezos believed in it. Four years later, the Echo became the future — and eventually transformed into being known simply as Alexa. Amazon has sold well over 100 million devices with Alexa built in, and voice shopping is expected to reach $40 billion in sales by 2022.

3.Facebook snatched up Instagram

In 2012, Facebook shelled out $1 billion for Instagram, the social media site that at the timehadjust30millionusersandnorevenue.Turnsout,itwasaprettysmartpurchase: As some fell out of love with Facebook, its baby, Instagram, gained momentum, especially among millennials and Gen Yers.The app now has 1 billion users,and analysts estimate that Instagram makes up a sizable portion of Facebook’s $56 billion annual revenue and could account for up to 70% of its future revenue growth. Many argue that the purchase made Facebook too powerful; the company is now facing an antitrust probe.

4.Disney invested in a galaxy far, far away

Disney snapped up the Star Wars empire, aka Lucasfilm, for $4 billion in 2012. The entertainment giant knew the value of a good franchise: It acquired Marvel in 2009 for $4 billion (and has subsequently made 16 films and $18 billion at the box office). With the addition of Lucasfilm, Disney shot off faster than a TIE fighter, with revenue increasing some 67% since 2012 to nearly $70 billion in 2019. It introduced a new trilogy: Star Wars: The Force Awakens, Star Wars: The Last Jedi, and Star Wars: The Rise of Skywalker (which opened this month), as well as Rogue One: A Star Wars Story and Solo: A Star Wars Story. The combined box office revenue of everything: $9 billion and one of the highest-grossing film franchises. And its new series, The Mandolorian, is driving subscriptions to its $7 per month Disney+ streaming service, which launched in November (as well as causing Baby Yoda fever). When you add in all the stuffed animals, plastic toys, posters, and other Star Wars merchandising, the franchise is now valued at more than $30 billion.

5.Microsoft pivoted to the cloud

When Satya Nadella took the helm of Microsoft in 2014, he didn’t reach for the stars — he reached for the cloud. As a result, he guided an amazing turnaround of the software company. Nadella arrived following the disaster that was Windows 8; in less than five years,heandhisteamcompletelyalteredMicrosoft’scourse,repositioningthecompany from a devices and services company to a mobile and cloud company. In addition to acquiring LinkedIn, Minecraft, and GitHub, Nadella grew Microsoft’s Azure platform to become the number two cloud provider behind Amazon. Microsoft’s share price tripled, and its valuation recently hit $100 billion,surpassing Apple. Nadella also embarked on a cultural change within the walls of the company and has been credited for “making Microsoft cool again.”

6.Google mapped its future with Waze

In the age of artificial intelligence, data is gold. And Google walked away with a sizable nugget when it bought social map startup Waze for $1.1 billion in 2013. The app helps drivers “outsmart” traffic, showing the most ideal routes that route around construction, jams, and accidents, while collecting GPS data from the phones of 130 million users. (It has since baked a lot of these features into Google Maps as well.) That location technology can be used in advertising, apps, social tools, and e-commerce.

 

Waze contributes to the growing chunk of information Google collects about your behavior, whether it’s your online searches about nose-hair trimmers, the makeup tutorial you watched on YouTube, the shirt you bought via Google Home, your heart rate while running to the train (courtesy of your Fitbit), or your coffee meeting with an old friend at Starbucks (scheduled in Google Calendar). All the better to target you with relevant ads.

7.Domino’s admitted its pizza sucked — and fixed it

When Patrick Doyle took the job of CEO at Domino’s in 2010, the first thing he did was admit that the pizza was terrible. While fixing the food, Doyle’s teaml aunched a bold ad campaign that shared negative comments from focus groups about the chain, such as “worst pizza I ever had” and “the crust tastes like cardboard.” In the campaign, Doyle promised to “work days, nights, and weekends” to get better.

 

The company did, and its reputation bounced back. Doyle also rolled out a training program and empowered every employee — no matter their level — to fix customer issues with free pizzas, vouchers, or extra toppings. The company also invested in technology, including self-driving cars, in-car pizza warmers, a better website, and apps. Its online ordering system may be the best out there, and the company’s share price has ballooned from $11 in 2010 to today’s $291 per share.

8.Merck made a big bet on Schering Plough

Merck laid down $41 billion to acquire U.S. drugmaker Schering Plough a decade ago. Historically, about 90% of mergers and acquisition deals in pharma never get off the ground (and 70% them don’t create long-term shareholder value). But this one was a winner. From that acquisition, Merck got its blockbuster oncology drug Keytruda, which is the company’s top seller, generating $7 billion last year. Schering Plough also gave Merck a host of brand-name products, like the prescription allergy spray Nasonex and Dr. Scholl’s orthopedic products. Just five years after it closed the deal, Bayer came along and acquired Merck’s consumer-care business, including Dr.Scholl’s, for $14billion. Merck’s stock price has also done pretty well: up to $89 per share, from $27 prior to the  acquisition.

9.Walmart did a 180 for its workers

For decades, people vilified Walmart for all the evils in its supply chain, its crushing impact on small retailers, and not-so-stellar labor policies. But in 2015, Walmart said it would spend $2.7 billion on 1.5 million U.S. employees — mainly improving employee wages, vacation policies, and investment in training. Wall Street didn’t like it: Shares tumbled upon the news. Walmart pushed forward anyway, and today, the average full- time Walmart store associate in the United States makes $14.26 per hour, almost double the federal minimum wage of $7.25. Walmart saw a payoff two years into the pay raises:

 

The company reduced turnover and improved the caliber of its workers. And as the largest employer in 19 states, Walmart upped the ante for the rest of the country’s minimum-wage employers, pushing them to match wages and driving the conversation about raising the minimum wage and reducing pay inequality.

The 9 Worst Moves

1.Facebook took a laissez-faire attitude on privacyand abuses of its platform

The social media giant has faced growing controversy since 2017, when Mark Zuckerberg apologized for letting Russia spend more than $100,000 in Facebook ads to spread propaganda that influenced the 2016 presidential election. Then came the news that research firm Cambridge Analytica harvested Facebook user data to build psychological profiles of voters (resulting in a $5 billion Federal Trade Commission finethis summer), followed by a security breach that may have exposed millions of users’ personal information.

 

The company put a fact-checking system in place to reduce fake news following the 2016 presidential election, but just this fall, it clarified a controversial advertising policy that says it won’t verify the claims made by political ads on the platform. Critics say this will allow politicians to spread misinformation across the site.

2.SoftBank turned a blind eye to WeWork’s problems

The Japanese conglomerate bet the farm on WeWork, investing more than $10 billion at a valuation of $47billion. The co-working company failed to go public in 2019 after news of company mismanagement, including founder and CEO Adam Neumann cashing out $700 million of the company for personal investments and properties and “summer camp” events akin to frat parties for employees.

 

SoftBank took a nearly $4.6 billion loss on the investment. Meanwhile, Neumann walked away from the mess with a $1.7 billion payout. SoftBank leader Masayoshi Son recently told investors that the WeWork investment was a mistake. “In many cases, I turned a blind eye, especially when it comes to governance,” he said. “It was a very harsh lesson.”

3.Volkswagen cheated and got caught

The German carmaker will go down in history for “emissionsgate,” one of the most audacious corporate frauds in history. For nearly a decade, VW aimed to surpass Toyota as the world’s top carmaker and bet on a breed of cars that were touted as “clean diesel” vehicles.It turned out to be a hoax. Regulators discovered that software programmed the exhaust control equipment in diesel vehicles to shut off after emissions tests. The tailpipes then puffed out illegal types of nitrogen oxides that led to air pollution — and health problems.

 

After it was revealed in 2015 that the carmaker intentionally rigged diesel-powered vehicles to cheat on emissions tests, VW officials said it was just a technical glitch or rogue engineers. But the car company later admitted that it had rigged the cars to deceive regulators. The emissions scandal led to criminal charges against VW’s chairman and CEO, who were both fired, as well as more than $30 billion in fines, penalties, and restitution — not to mention a tarnished reputation.

4.Uber took too long to fix its culture

Since its founding in 2009, Uber has challenged the status quo, including sometimes overtly defying local taxi regulations. But it turned out rules were being broken inside the  company, too. Case in point: In 2017, Susan Fowler, a former Uber engineer, wrote a blog post accusing Uber of having a culture of sexism and sexual harassment, which helped spark the #MeToo movement. Facing boycotts, CEO and founder Travis Kalanick hired former U.S. attorney general Eric Holder to launch an “urgent investigation” into the allegations. While this was happening, Kalanick was caught on video arguing with an Uber driver over pay rates.

 

A line of C-suite execs quit over the next few months, saying their beliefs clashed with leadership’s approach. A few months later, the U.S. Department of Justice launched a criminal investigation into Greyball, a software tool that Uber used to evade law enforcement officials in cities where ride-sharing wasn’t allowed. Finally, a company wide email  from Kalanick went public. In it, he set ground rules for using drugs and having sex with other employees at a company retreat in Miami. After months of scandal, Uber’s board eventually asked Kalanick to resign before launching an IPO roadshow. Today, he’s worth an estimated $3.2 billion.

5.Sony ignored hacker red flags

Hackers infiltrated Sony Pictures in 2014 in what’s been called “the hack of the century.” Hackers uploaded malware that attacked Sony’s hub for media distribution, as well as billings,bookings,and more. Executives initially blew off the incident, simply disabling two affected email accounts, instead of investigating emerging malware and exploits and figuring out that hackers wanted to infiltrate the corporation.

 

Months later, a sophisticated “wiper” malware crippled Sony, shutting down half its global network, stealing scripts and personal information like salaries and Social Security numbers, as well as exposing damaging internal emails that cost some employees their careers. It even erased everything on its 3,262 computers and 837 servers. The U.S. government found that North Korean hackers were responsible, likely in response to the Seth Rogen movieThe Interview, which lampooned the North Korean dictator.

6.Yahoo made a bad bet on Tumblr

In 2013, Yahoo bought Tumblr for $1.1 billion, assuming the fast-growing social media site could help the company compete with Google and Facebook. At the time, CEO Marissa Mayer posted on Tumblr that Yahoo would “not to screw it up.” Two years later, Tumblr was still in the red, and employees left en masse after Mayer reorganized the ad sales teams at Yahoo and Tumbler and established a $100 million sales target. It didn’t work, and Yahoo wrote off $712 million on its purchase.

7.United Airlines dragged an old man off a plane

In 2017, United Airlines made headlines when it dragged 69-year-old Dr. David Dao off an overbooked flight in Chicago. Videos of the bloody man being dragged down the aisle went viral, sparking outrage worldwide. United found itself in one of the worst public relations nightmares in its history, which was made worse after CEO Oscar Munoz described the incident in a statement of apology as an attempt to “reaccommodate” the passenger and then later called passenger Dao “disruptive and belligerent,” which other passengers (and another video) disputed. United was one of the lowest-ranked airlines by consumers the next year.

 

8.Equifax botched its data security

Credit reporting agency Equifax has struggled to recover from its 2017 data breach, labeled the “worst data breach in history” by federal lawmakers because it exposed Social Security numbers, birth dates, addresses, and driver’s license numbers of 150 million Americans. Those people will be at risk for identity theft and fraud for the rest of their lives, according to an investigation by the House Committee on Oversight and Government Reform. Equifax had failed to use well-known security practices and didn’t have internal security controls and securityreviews.

 

In July 2019, Equifax paid $650 million to settle with the Federal Trade Commission to resolve investigations by several state attorneys, the Consumer Financial Protection Bureau, and a consumer class-action lawsuit.

9.YouTube focused on engagement above all else

YouTube used A.I.-powered algorithms to drive “minutes” of watch time on its videos, suggesting videos to watch next. But this drive to increase “engagement” led to YouTube recommending conspiracy theories, hate speech, and pedophile content. For years, top YouTube execs ignored employee warnings that there was too much misinformation and nastiness on the site. Plus, the company even monetized some of this content, realizing that algorithms drove 70% of what we watched on YouTube. Its parent, Google, has since started making changes in the algorithms to prevent harmful content from appearing and make it harder to find videos on conspiracy theories on the video page. It even directs viewers to “authoritative” news sites the company considers trustworthy. The company also took down millions of channels and videos that violate harmful-content policies.

 

Jennifer Alsever - Dec 30, 2019

 

 

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