Capitalism the Apple Way vs. Capitalism the Google Way - The Atlantic
▻https://www.theatlantic.com/business/archive/2017/07/apple-google-capitalism/532995
While lots of attention is directed toward identifying the next great start-up, the defining tech-industry story of the last decade has been the rise of Apple and Google. In terms of wealth creation, there is no comparison. Eight years ago, neither one of them was even in the top 10 most valuable companies in the world, and their combined market value was less than $300 billion. Now, Apple and Alphabet (Google’s parent company) have become the two most valuable companies, with a combined market capitalization of over $1.3 trillion. And increasingly, these two behemoths are starting to collide in various markets, from smartphones to home-audio devices to, according to speculation, automobiles.
But the greatest collision between Apple and Google is little noticed. The companies have taken completely different approaches to their shareholders and to the future, one willing to accede to the demands of investors and the other keeping power in the hands of founders and executives. These rival approaches are about something much bigger than just two of the most important companies in the world; they embody two alternative models of capitalism, and the one that wins out will shape the future of the economy.
What has Google done in that same period? Google is, like Apple, making loads of money. From 2013 to March 2017, it generated $114 billion in operating cash flow. How much has the company distributed to shareholders? In contrast to Apple’s 72 percent payout rate, Google has only distributed 6 percent of that money to shareholders.
The paths taken by Apple and Google manifest alternative answers to one of the main questions facing capitalism today: What should public companies do with all of the money that they’re making? Even as corporations have brought in enormous profits, there has been a shortage of lucrative opportunities for investment and growth, creating surpluses of cash. This imbalance has resulted in the pileup of $2 trillion on corporate balance sheets. As companies continue to generate more profits than they need to fund their own growth, the question becomes: Who will decide what to do with all those profits—managers or investors?
The importance of these two models might soon escalate dramatically. There’s a real possibility that tax reform at the federal level will unlock the offshore cash that corporations have amassed, and the subsequent flood of money will have to be reallocated in the economy—somewhere, somehow.