Good morning.
Here’s a number to start your day: the folks who run Airbnb believe they will earn as much as $3.5 billion a year by 2020, before interest, taxes and depreciation, according to Fortune’s Leigh Gallagher. That’s an audacious goal—up 3,400% from last year’s earnings, and more money than made by 85% of the Fortune 500. It would propel CEO Brian Chesky and his partners into the pantheon of business success, and be yet another demonstration of the incredible power of digital platforms.
It would also be yet another demonstration of why the economics of digital businesses are driving increased inequality in the modern world. Consider this: Since its founding nine years ago, Airbnb has spent less than $300 million on everything—employee salaries, website maintenance, refunds, etc. Hilton, by comparison, had $7.2 billion in expenses in the first nine months of last year alone. To be sure, Airbnb helps people make a living by renting out their property. But when it comes to jobs, its contribution in comparison to the hotels it competes with is minuscule.
You can read the remarkable saga of Airbnb in Gallagher’s new book: The Airbnb Story: How Three Ordinary Guys Disrupted an Industry, Made Billions…and Created Plenty of Controversy. Or you can read this excerpt that ran in Fortune. I highly recommend both.
But when you are done, consider the fact that we still haven’t figured out how an economy increasingly characterized by such zero-marginal-cost businesses really works, and how it distributes technology’s benefits fairly to society. That’s the challenge for the future.
More news below.
| Alan Murray | |
| @alansmurray | |
| alan.murray@fortune.com |
Top News
• Yellen Keeps March Hike on the Table
Federal Reserve board chairwoman Janet Yellen indicated to the Senate that the next rise in official interest rates could come as soon as next month, as long as the economy isn’t blown off course. Her outlook was more bullish than that of the markets, and both the dollar and stocks rose in response, while bonds fell. Yellen said it “would be unwise” to delay raising rates too long. Outside of Congress, two other Fed officials, Robert Kaplan and Jeffrey Lacker, made the same argument in more forceful terms, with Lacker saying the case for a March hike was “compelling.” Yellen was more cautious about the prospect for selling back its vast stock of bonds into the market, indicating no rush to unwind the “quantitative easing” of recent years. Fortune
• Row Over Trump Campaign’s Russia Links Deepens
President Donald Trump knew for two weeks that National Security Adviser Michael Flynn had misled the White House about his contacts with Russia, but didn’t immediately force him out, Reuters reported White House spokesman Sean Spicer as saying. Meanwhile, the New York Times reported Trump’s campaign staff and other associates had repeated contacts with senior Russian intelligence officials in the year before the election. The only one identified was Paul Manafort, who ran Trump’s campaign until the first allegations of improper contact between the GOP candidate and Russia broke. He described the report as “absurd.” Trump has said nobody from his campaign had contact with Russian officials. However, Russia’s deputy foreign minister Sergey Ryabkov said two days after the election that “obviously, we know most of the people from his entourage.” NYT
• GM Has Had Enough of Losses in Europe
General Motors is in talks that may lead to the sale of its European operations, which make the Opel and Vauxhall brands, to France’s PSA Group, the owner of Peugeot and Citroen. After 16 straight years of losses, the last straw for GM appears to have been the Brexit vote, which cost it over $300 million and appears to have reduced the value of the U.K. market for the foreseeable future. A sale would free up capital for investment in autonomous and electric vehicles at GM, while leaving PSA with the less pleasant task of pruning overcapacity. Shares in both companies rose over 3% in response to the news. Fortune
• Peltz Puts the Squeeze on P&G
Activist investor Nelson Peltz has made a $3.5 billion bet on Procter & Gamble, a wake-up call to the august consumer goods giant that has largely slept through the market rally of the last two years. The position is the biggest ever taken by Peltz’s firm, Trian, and the first new one that Trian has disclosed in a year. While it only gives Peltz 1% of the company, the noise and the pressure from Trian is likely to be disproportionate. P&G CEO David Taylor has pledged to cut another $10 billion from costs in addition to $7 billion in savings already achieved. Peltz is expected to send Taylor his thoughts in a ‘white paper’ soon. Fortune
Around the Water Cooler
• Facebook Eyes Music Challenge to YouTube
Facebook is broadening its assault on the video medium. The company is reportedly in talks with music publishers and rights-holders with a view to making it easier for music videos to exist on the network without breaching copyright rules. It recently hired YouTube’s former director of music partnerships Tamara Hrivnak to run its global music efforts, in what looks like a direct challenge to Google’s video service. Artists will relish the thought of more competition for their creations. Companies like Spotify, still struggling to monetize their services, less so. Fortune
• Son Taps Fortress to Deliver U.S. Investment Pledge
Masayashi Son’s Softbank is buying alternative investment firm Fortress for $3.3 billion, around 40% more than the stock market thought it was worth at the start of the week. It looks like an indirect way for Son to start delivering on the pledge he made in December to Donald Trump to invest $50 billion in the U.S.. The company has around $70 billion in assets under management, including a $14 billion private equity business. It’s certainly a departure from Softbank’s previous strategy of investing directly in technology companies. Son had already hired Rajeev Misra, one of Fortress’s top managers, in 2014. Misra is now heading $100 billion investment fund that Softbank and others set up with Saudi Arabia. Fortune
• Winds of Change
For the first time ever last Sunday, wind satisfied more than half of the demand for power on one of the U.S.’s regional power grids—the Southwest Power Pool that runs high-voltage lines from Texas and Louisiana to Montana and North Dakota. While demand is always lower at weekends than during the week (and the record was notched while most people were still in bed), that’s still a notable milestone. Not only does it testify to the increasing competitiveness of renewable energy sources, it also shows the progress grid managers have made in coping with larger inputs of variable power. SPP operations head Bruce Rew said the company couldn’t have coped with a 25% wind penetration 10 years ago, whereas even the 52% recorded on Sunday was well within manageable limits. Fortune
• From Bad to Worse at Toshiba
Shares in Toshiba slid back towards their all-time lows, losing 8.6% in Tokyo after the company said it would have to sell off more of its most valuable asset, its flash-memory chip business, to fill the hole left by the accounting scandal at its nuclear business. CEO Satoshi Tsunakawa had previously hoped to keep at least 80% of the chip business to ensure some kind of future for the company, but said Wednesday he would consider selling it off entirely. It’s a classic fire sale: the company has till March 27 to fix a massive negative equity position in its balance sheet, and it’s already begging lenders to waive loan covenants. One of its only bargaining chips, perhaps, is that it’s vital to Japan’s program for decommissioning nuclear reactors, and Tokyo needs it to survive in some form. Reuters
Summaries by Geoffrey Smith Geoffrey.smith@fortune.com;
@geoffreytsmith
