One Step Up #53
This week, we look at Lego's turnaround, China-tech, Swedish Match AB, Etsy and building in-house ad-tech
If you control your factories, you control your quality; if you control your distribution, you control your image.
- Bernard Arnault, LVMH
The inside story of how a 'band of misfits' saved Lego
Remarkable story of how Lego got back on its feet after being close to bankrupt.
Hint: it wasn’t by selling more products to kids.
It’s problematic when you have a timeless product in an industry that's all about innovation.
Why is China smashing its tech industry?
In other words, the crackdown on China’s internet industry seems to be part of the country’s emerging national industrial policy. Instead of simply letting local governments throw resources at whatever they think will produce rapid growth (the strategy in the 90s and early 00s), China’s top leaders are now trying to direct the country’s industrial mix toward what they think will serve the nation as a whole.
And what do they think will serve the nation as a whole? My guess is: Power. Geopolitical and military power for the People’s Republic of China, relative to its rival nations.
If you’re going to fight a cold war or a hot war against the U.S. or Japan or India or whoever, you need a bunch of military hardware. That means you need materials, engines, fuel, engineering and design, and so on. You also need chips to run that hardware, because military tech is increasingly software-driven. And of course you need firmware as well. You’ll also need surveillance capability, for keeping an eye on your opponents, for any attempts you make to destabilize them, and for maintaining social control in case they try to destabilize you.
And so when China’s leaders look at what kind of technologies they want the country’s engineers and entrepreneurs to be spending their effort on, they probably don’t want them spending that effort on stuff that’s just for fun and convenience. They probably took a look at their consumer internet sector and decided that the link between that sector and geopolitical power had simply become too tenuous to keep throwing capital and high-skilled labor at it. And so, in classic CCP fashion, it was time to smash.
SWMA - The Best of Both Worlds: Charter ft. Coca-Cola
The pitch summarized in a sentence:
SWMA effectively combines the best qualities of Buffett & Munger’s KO thesis and Malone & Maffei’s CHTR thesis, but with lower capex requirements, better incremental returns, and faster growth.
Etsy: Building a House of Brands
Should you build in-house ad tech?
In-house ad technology is primarily the type of pursuit companies should only do in the growth phase (Zynga -> Airbnb) or fighting for relevance phase (eg, Capital One).
Build or buy? When? Why?
Till next time.
In theory, there is no difference between practice and theory. In practice, there is.
- Yogi Berra