In A Random Walk Down Wall Street, Malkiel makes mention of corporations merging and creating an inflated stock price out of thin air. He goes into detail explaining how the math behind it all works but the end result was a company with a higher share price, lower P/E ratio and the hopes that another fool would be willing to take the stock off of investors hands at a later date. This is all part of his “castles in the air” theory.
One of the examples Malkiel gives is that companies whose businesses were completely unrelated but would still attempt to merge together. While Malkiel’s argument is strong and I tend to agree with it, this made me think of examples of companies that don’t necessarily merge together, but pair up to make a product. Oftentimes this can seem to create real value for both parties involved. One type of pairing of companies that I would expect to see on the rise is between tech companies and companies that make wearable accessories like watches, sunglasses, etc.
I am sure that many of you have heard about Fitbit, the bracelet / exercise assistant that recently had a massive recall because the material of the bracelet caused rashes and skin irritations for many users. They are now facing a class action law suit. The technology wasn’t the issue, it was the material. I am sure that this problem wouldn’t have happened had Fitbit paired up with a company who specializes in making bracelets. This would allow the tech companies to focus on what they do best, the bracelet company to focus on what it does best and the end result would have been an all around better product.
A simple google search for “wearable technology” will reveal how much this market being talked about. While solar powered dresses may be a bit of a stretch, other more practical forms of wearable technology are picking up a lot of attention. As a user of the galaxy smartphone, the galaxy smart watch has intrigued me, although my reservation on buying one is that I already own a watch that I think looks nicer. If Samsung would pair up with Citizen to make a wearable watch that I like as much as my current watch, maybe I would rethink my decision not to purchase one.
Today on the Wall Street Journal, I read that google will be pairing up with Ray Ban and Oakley for its google glass. This is exactly the kind of pairing up of companies that has the potential to create real value. The article outlined the benefits of such an arrangement; notably the ability to get google glass in front of millions and convince consumers that google glass is a consumer product for every day use, not just specialized uses like a doctor to record interactions with patients. While I don’t have the same fondness for sunglasses as my wrist watch, I can imagine that this move will make many consider google glass who otherwise wouldn’t have. I expect this arrangement to pay off for both parties. Prior to this, expensive sunglasses are something that many purchase once and they last for many years. Adding the features of google glass may drive more repeat customers who have a pair of luxury brand sunglasses but want the functionality that is now possible thanks to this partnership with google.
In the near future, I expect to see other companies follow suit and pair up to create stylish, wearable technology that can improve our lives and change the ways that we interact with technology.