Wednesday Briefs – 30 June 2021

THIS WEEK: Facebook Monopoly; Victoria’s Recovery; Florida Condo Collapse.

FACEBOOK MONOPOLY

A Federal judge was unconvinced by lawsuits charging that Facebook is a monopolist. He noted among other things that a 60% market share suggests that there is plenty of competition out there. That depends on where you draw the perimeter of social media. Twitter, LinkedIn and Tik Tok are not directly comparable.

The main issues going forward ought to address openness, portability and pricing. It is difficult for a user to move to another platform because switching impediments are high. He may have years of status updates and photographs uploaded to Facebook. And his circle of friends on Facebook may not be on other platforms. A changed model that incorporates openness and portability would foster real competition. Under this model, it would be possible to post the same content across several media platforms. It would also be possible to abandon any platform simply by transporting one’s full content file to another.

As to pricing, we noted previously that Facebook is not free to users. It charges a “monopoly price” that exactly matches a user’s value to Facebook. This is clearly too high, if we judge by Facebook’s 80%+ gross margins, well ahead of Google and Microsoft. See also Tech Giants Should Pay Users.

VICTORIA’S RECOVERY

A few months before its spinoff, lingerie and beauty maven Victoria’s Secret has made an important shift in its marketing, moving away from its “Angels” fashion to adopt a more inclusive image.

The New York Times ran with it:

“The Victoria’s Secret Angels, those avatars of Barbie bodies and playboy reverie, are gone. Their wings, fluttery confections of rhinestones and feathers that could weigh almost 30 pounds, are gathering dust in storage. The “Fantasy Bra”, dangling real diamonds and other gems, is no more. In their place are seven women famous for their achievements and not their proportions. They include Megan Rapinoe, the 35-year-old pink-haired soccer star and gender equity campaigner; Eileen Gu, a 17-year-old Chinese American freestyle skier and soon-to-be Olympian; the 29-year-old biracial model and inclusivity advocate Paloma Elsesser, who was the rare size 14 woman on the cover of Vogue; and Priyanka Chopra Jonas, a 38-year-old Indian actor and tech investor.”

This was a bold move by Victoria’s Secret that follows a strong post-pandemic recovery and comes just before its separation from parent L Brands. Investors have taken notice and have doubled L Brands stock to $73 so far this year. Its performance since the market bottom of March 2020 has outdone the hottest tech stocks. L Brands bit the dust at $8 fifteen months ago and is up nearly tenfold since then.

In valuation terms, a company’s market value is the sum of its book value and of the total value of its intangibles known as goodwill. Firms with large intellectual property assets such as brands, trademarks, patents etc. have market values that exceed their book values by a factor of 5x, 10x or more. Victoria’s Secret’s marketing gamble is that it can preserve its goodwill value while making a significant lateral shift in its marketing and image. If it succeeds, many beauty companies will follow down the same path.

FLORIDA CONDO COLLAPSE

It is too early to pinpoint the exact cause of the collapse at Champlain Towers, a condominium building in Surfside north of Miami. Poor maintenance of the structure, design errors and rising water tables are all possible reasons.

It is very rare for a building to collapse because structures are designed to carry loads well in excess of their intended use. In most failures, there is a combination of design error and excess loading. The 1981 collapse of a skywalk at a Kansas City Hyatt hotel was attributed to a design error that became fatal when the skywalk was overloaded with people during a party. The 2007 collapse of Bridge 9340 in Minnesota also occurred when high loads exceeded a capacity that was reduced by a design flaw.

Based on early reports, the Champlain condo may have failed after the ground floor pool deck collapsed. It is possible that when that floor disappeared, the lower floor columns lost their lateral bracing and their increased slenderness caused them to buckle under the weight of the building.

Resonance can also be a cause of structural failure as famously shown in the 1940 Tacoma Bridge footage. It is possible that it played a role in Surfside due to vibrations from nearby construction. Resonance recently caused a panic at a Shenzhen office tower.

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