Transformation from asset-based companies to asset-less companies
Recent years have seen not only an emergence, but also a proliferation, of “asset-less” companies. Once said Clayton Christensen, “When the basis of competition changes, because of technological shifts or other changes in the marketplace, companies can find themselves getting better and better at things people want less and less. When that happens, innovating your products won’t help — you have to innovate your business model or be disrupted.” – it is perfectly describing the situation which already started more than 15 years ago, the transformation of the old economy or also called status-quo.
Figure 1. Source: www.visualcapitalist.com
As it can be seen the figure above the company’s sectors such as oil companies and retailers dominated 2001 the top ranking of being valued the most worldwide. However, in the past 8 years all those companies were mainly dethroned by software companies or IT-Companies.
Current Top-Players
It has often been commented that the world’s largest taxi firm holds no cars, the world’s largest online retailer holds no stock, and the world’s most popular media company produces no media. Despite this, the values of Uber, AliBaba, and Facebook continue to rise, and their valuation has become a hot topic of discussion in the capital markets space.
But why is it like that?
By owning less and relying on a network to share the load, the new top players operate more profitably and scale rapidly and inexpensively, trouncing big, established, asset-heavy players. Because firstly, it is lightening their balance sheets. People are carefully considering which assets they actually need to own, and what stuff actually creates more value than its cost of ownership. Remember that there are real drawbacks to ownership—storing, maintaining, insuring, and replacing all drain time and money.
Forecast
The old Companies are realizing the benefit of less assets and started to change. Walmart, for example, is planning to shed more than 150 stores this year, and is investing $2B in technology and logistics to support e-commerce. Still it’s also possible that we will eventually see the rise of a few stars that manage to garner high multiples in asset-heavy fields. Tesla is one such contender, although it seems likely that the value of its new ideas and intellectual property will need to offset its massive investments in physical assets.
The bottom line: Asset heavy companies have a lot of work to do — including changing beliefs, using technologies, and reallocating capital. There is no way out besides forward in a world where, increasingly, less is more.
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