Bob’s Buzzword of the Day: `Fundless Sponsor'

Bob’s Buzzword of the Day: `Fundless Sponsor': Video - Bloomberg

Samsung’s Capital Structure | asymco

Samsung’s Capital Structure | asymco

The Economist summarized it well:

[Samsung's] businesses look remarkably disparate, but they share a need for big capital investments and the capacity to scale manufacture up very quickly, talents the company has exploited methodically in the past.

Samsung’s successes come from spotting areas that are small but growing fast.Ideally the area should also be capital-intensive, making it harder for rivals to keep up. Samsung tiptoes into the technology to get familiar with it, then waits for its moment. It was when liquid-crystal displays grew to 40 inches in 2001 that Samsung took the dive and turned them into televisions. In flash memory, Samsung piled in when new technology made it possible to put a whole gigabyte on a chip.

When it pounces, the company floods the sector with cash. Moving into very high volume production as fast as possible not only gives it a price advantage over established firms, but also makes it a key customer for equipment makers. Those relationships help it stay on the leading edge from then on.

The strategy is shrewd. By buying technology rather than building it, Samsung assumes execution risk not innovation risk. It wins as a “fast follower”, slipstreaming in the wake of pioneers at a much larger scale of production. The heavy investment has in the past played to its ability to tap cheap financing from a banking sector that is friendly to big companies, thanks to implicit government guarantees much complained about by rivals elsewhere.

• Chart: Pandora's Royalty Costs Continue to Outgrow Revenue | Statista

• Chart: Pandora's Royalty Costs Continue to Outgrow Revenue | Statista

"Pandora had 62.4 million active listeners by the end of November, an increase of 45 percent over the same period last year. Listener hours during November amounted to 1.27 billion, up 58 percent from November 2011. Revenue grew 60 percent to $120 million. An impressive number if only content acquisition costs had not grown 75 percent during the same time...."

It's hard to see how this could be sustainable in the mid-term. This would be a good time for video streaming and music streaming services merge for scale purposes.