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Patrimonial Capitalism

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This notion has been stewing in me for quite a while, and yesterday Paul Krugman wrote an article about this topic of Patrimonial Capitalism.

"...the political spectrum now instinctively accords much more respect to capital than to labor, at a time when capital income is growing ever more concentrated in a few hands — and is surely on its way to being concentrated largely in the hands of people who inherited their wealth."
This is somewhat related to my earlier post of how I wish things were - with a balance between owners, employees and customers - called Capitalism and the Three Legged Stool.

In Krugman's article, the basic premise is that since wealth and income are concentrated increasingly in fewer people's hands, the society at large is dependent on the patrimony, or direction, of the 1% (or maybe the .1%).  Decisions like Citizens United help to reconfirm this, as those with large wealth can now invest to shape the government.

These topics have been beaten to…

WhatsApp Valuation Model

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I finally had a moment to figure out the Whatsapp business model. First year is free and then $0.99 per year thereafter. With 400 Million users, that is about $400M in revenue per year (or per next year). 

They do 18 Billion messages per day. Using Amazon AWS SQS or SNS pricing of $0.50 per Million, that is $9,000 per day of approximate cost, or about $4M of costs per year. I know that is probably a bit light because I am not including data transfer costs of about a Nickel/GB. 

For employee costs, they had about 60 people at an average fully burdened load of $200K is about $11M.

The big cost for WhatsApp are the Apple and Android Store transaction fees of 30% - about $120M.

So, a net income (next) year of ~$260M. 

Put that net at a 73X P/E ratio and it gets you to the $19B valuation.  Comparatively:

IBM has a PE of 12Red Hat has a PE of 64Facebook has a PE of 112Amazon has a PE of 580.
Of course it positions Facebook well to address some challenges it has.  The two big ones that come to mind…

Capitalism vs. the Three Legged Stool

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Wikipedia defines: "Capitalism is an economic system in which trade, industry and the means of production are controlled by private owners with the goal of making profits in a market economy."
This definition has always bothered me. I prefer a different model where there is equal recognition of the three primary drivers behind the success of a company:

OwnersEmployeesCustomersI like to think of it as a three legged stool, where each leg is as important as the other.  One gets too large or small and the stool tips over.
The free market is supposed to take care of Employees and Customers.  Employees because the Owners will create so many jobs that due to supply and demand, employees will receive competitive pay.  Customers because if the owners are not building the right thing, then they can go elsewhere.
As someone who has helped to build about 10 startup companies now, I have seen the power in making these three stakeholders equal partners. 
Employees who are true stakeholders - …