7.24.2008

The New New Economy Lives
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The Ford Motor Co., 20th century titan, reeling with the shift in consumer consumption patterns, announced a loss of $8.7 billion for the recent quarter.

Meanwhile, analysts knock 21st century Google (GOOG) for delivering "only" a 30% increase in profit over last year, on top of what is already a huge revenue base.

What we're seeing once again is that information trumps hard goods in terms of value creation - either by delivering revenues directly, or dynamically altering capabilities and changing variables in the value equation.

Many firms are slicing away at the inefficient healthcare supply chain, one of the great opportunities for rationalization because its operations up to now have been so irrational and 20th Century.

The idea of systematically monitoring and improving your brain with exercises and games seemed heretical and 'weird' just a few years ago but now, the medical community has stopped laughing as the evidence begins to mount that monitoring and improving your brain is (a) feasible and (b) seems to work for individuals, even when allowing for foresworn skeptics who attribute benefits to a placebo or practice effect.

Changing patterns of belief and behavior, we are reminded is never easy. Just look at Ford's performance. On a dark night on the bridge, Ford leadership saw the moonlight reflecting off the iceberg to the fore, and thought, either "that is too small, it won't cause any damage" or delayed too long in turning the ship's wheel to starboard. With a large vessel, momentum results in slow responsiveness, and likely the collision with a new reality was unavoidable.

Ford likely has the capital reserves and goodwill to ride out this threat and never, because of the shock, will be so complacent or slow again. But a second of third occurrence might be fatal, causing Ford to need to dismantle itself. Certainly, smaller, less well equipped firms will be killed off in this seachange of oil markets, just as the banking crisis is claiming those firms that skated too close to the edge of the thin ice of financial engineering or found themselves ambushed in the financial markets by shorts marching in lockstep, if you follow Vanity Fair's soap-opera account of Bear Stearns' demise.

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