The rise of the (retail) shareholder
One of the biggest revolutions on the internet was the rise of social networks. They allow anyone to have a voice. That in turn is having rippling effects in the society.
That has reduced the effects of money spent in elections. In the US, Trump was the first president in more than a decade to underspend the opponent in an election, and win the race. Other Western countries like Mexico, Brazil and France are seeing the same effect with candidates, that represent different parts of the political spectrum. But the same tools that changed the way elections are held, also sparked manifestations worldwide. They helped Brazilians impeach their president, and French residents protest against new taxes. Social Media completely changed the landscape.
The News Media is also being completely changed by the internet. Blogging platforms like Medium, Twitter and others allowed the average user to share their thoughts with everyone, preventing gatekeepers from holding information, or dictating the conversation in one way or the other. But now that everyone can express their opinions, the dynamics of the news business has changed.
As soon as news come out, publications everywhere publish the same piece of information. There is not as much value for publishing news. The value has moved from reporting to analysis of new acquired information.
Now, the value is in thorough and expert analysis. Media businesses are adapting to the new reality. Both the New York Times and Washington Post are again growing their revenue. Each one of them has millions of subscribers.
The music industry saw a similar transformation. At first, the industry saw its revenues decline, but after it transitioned to the new model with new distribution channels, it saw revenues bounce back. It won’t be long when revenues in both industries are higher than at the peak during the “old era”.
Now, the internet is starting to change another industry: Finance. Companies like Robinhood are starting to democratize investment tools to the average investor. Robinhood doesn’t charge per transaction but monetizes the service by offering a premium service, or selling some of the data to Hedge Funds. The internet allows companies like that to be born because the cost of acquisition of new users is almost $0.¹
There are other companies emerging in the pack. For example, Say.com — launched a month ago — is leading the way to create more accountability with companies. Say.com allows retail investors to post questions, and vote on the best ones. The questions are ranked by the sum of shares of the voters, and the top questions are asked to the executive team during earnings calls.
We saw that happen in Tesla latest earnings call. Elon Musk answered the top voted questions. Not surprisingly, it was the most interesting part of all the call.
But this is just the beginning of how the retail investor will affect change. These platforms will emerge and help not only the retail investor to communicate and ask executives questions. They will help them promote change within the corporate world. It will not be long when we will see retail investors replacing CEOs, using such tools.
Up until now, only hedge funds and other institutional investors had a voice. These institutions were able to push change. They could make companies buy back their stocks or could even replace CEOs. But up until now the average investor didn’t have a “voice”. The internet and the emergence of such tools will give more voice and power to the average investor. This will make companies and executives more accountable.
We are just starting to see the same change that we saw in other industries happen in Finance. Only after decades of the invention of the internet, society is seeing the results of a more connected world. For better or worse, each one of us will have more voice. Corporate America is not prepared to the change that is about to happen.
- There is an interesting conversation with Pomp and Howard Lindzon about the effect of almost free customer acquisition cost and Robinhood that I recommend listening
You can find all my articles here: https://giacaglia.github.io/blog/
