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My father worked at Bell Labs. (Take your kid to work day was a blast for me!) My father points out that the monopoly deal with the US govt turned Bell Labs

My father worked at Bell Labs. (Take your kid to work day was a blast for me!) My father points out that the monopoly deal with the US govt turned Bell Labs the profit center. AT&T charged its customers a fixed percentage of its costs … from 3 years prior. The only way to make more profit was to make today’s costs cheaper than those of 3 years ago. This lead to: innovate, innovate, innovate. Many companies admire research. For AT&T at that time, it was their lifeblood.

MichaelZuo 2y ago
This, but also more suprisingly, this is the only comment out of 90 that offers genuine insight instead of repeating pre-existing talking points…
thaumasiotes 2y ago
> AT&T charged its customers a fixed percentage of its costs … from 3 years prior. The only way to make more profit was to make today’s costs cheaper than those of 3 years ago. No, this still allows the standard method of increasing profits under a cost-plus structure: all it takes is increasing your costs. The more you spend, the better off you are. Doesn't matter what you get for your money. With a three-year lag, you need to be able to pay your operating costs out of savings over a three-year window, but that's it. It's purely a cash-flow restriction. By contrast, lowering your costs will make you a one-time cash bonus this year, at the cost of making you permanently poorer. This is not a sensible trade to make.
- natpalmer1776 2y ago
  Unless you double dip by increasing your on-paper costs via R&D / capex and decreasing your required expenditure via optimization of the former (while also increasing your revenue potential via infrastructure buildout). While on paper your costs are going up, in practice your profit potential is skyrocketing yoy.
  - thaumasiotes 2y ago
    How so? You have to keep paying for everything, or your profits will be taken away. Your profit potential is always and only limited by your ability to cover costs in advance. Saving on necessary expenditures brings you zero benefit, because any necessary expenditure that you eliminate must be replaced by an unnecessary one, or profits will go down instead of up.
    - natpalmer1776 2y ago
      The same way the tech industry currently does it. You spend all your profit on research, product development, marketing, etc. to increase your overall revenue when (in the short term) you could simply stop spending money on all those things and keep only enough engineers on-staff to keep your existing products stable and customers happy. By comparison, a construction company cannot stop buying materials in order to continue generating revenue, and they cannot reduce their workforce significantly and continue taking on the same types of jobs. In the instance of Bell Labs, those researchers were the 'unnecessary to business' route through which to increase revenue (by both increasing costs and also building a technology-based moat) and since those who control a company typically only profit by 'skimming the cream' increasing revenue without increasing profit seems like an excellent way to increase the value of the company to those who are interested in doing so.

MichaelZuo 2y ago

This, but also more suprisingly, this is the only comment out of 90 that offers genuine insight instead of repeating pre-existing talking points…

thaumasiotes 2y ago

> AT&T charged its customers a fixed percentage of its costs … from 3 years prior. The only way to make more profit was to make today’s costs cheaper than those of 3 years ago. No, this still allows the standard method of increasing profits under a cost-plus structure: all it takes is increasing your costs. The more you spend, the better off you are. Doesn't matter what you get for your money. With a three-year lag, you need to be able to pay your operating costs out of savings over a three-year window, but that's it. It's purely a cash-flow restriction. By contrast, lowering your costs will make you a one-time cash bonus this year, at the cost of making you permanently poorer. This is not a sensible trade to make.

natpalmer1776 2y ago
Unless you double dip by increasing your on-paper costs via R&D / capex and decreasing your required expenditure via optimization of the former (while also increasing your revenue potential via infrastructure buildout). While on paper your costs are going up, in practice your profit potential is skyrocketing yoy.
- thaumasiotes 2y ago
  How so? You have to keep paying for everything, or your profits will be taken away. Your profit potential is always and only limited by your ability to cover costs in advance. Saving on necessary expenditures brings you zero benefit, because any necessary expenditure that you eliminate must be replaced by an unnecessary one, or profits will go down instead of up.
  - natpalmer1776 2y ago
    The same way the tech industry currently does it. You spend all your profit on research, product development, marketing, etc. to increase your overall revenue when (in the short term) you could simply stop spending money on all those things and keep only enough engineers on-staff to keep your existing products stable and customers happy. By comparison, a construction company cannot stop buying materials in order to continue generating revenue, and they cannot reduce their workforce significantly and continue taking on the same types of jobs. In the instance of Bell Labs, those researchers were the 'unnecessary to business' route through which to increase revenue (by both increasing costs and also building a technology-based moat) and since those who control a company typically only profit by 'skimming the cream' increasing revenue without increasing profit seems like an excellent way to increase the value of the company to those who are interested in doing so.