America's No. 1 financial conglomerate

Chapter 330 Speech

In the auditorium at USC, hundreds of people held notebooks in their hands, their eyes filled with anticipation for the speech that the business tycoon on stage was about to deliver.

But no one expected that Ernst's opening remarks, which came out like a thunderclap from nowhere, would start his formal speech.

"Competition is a game for losers."

As soon as he finished speaking, a successful man in a suit in the first row drew a long ink mark on his notebook with his pen, and many people began to whisper among themselves because of what he said.

Ernst, observing the commotion below, curled his lips into a half-smile, cleared his throat, and continued, "Have you ever wondered why most companies work harder and harder, yet their profits, like ice cream in summer, diminish the more you lick it?"

His gaze swept over the furrowed brows of the faces below the stage, as if he had anticipated such a reaction. "The answer is simple: they used tactical diligence to mask strategic laziness. They kept a close eye on their opponents' movements every day, working themselves to the bone, but they never asked themselves, 'Can I truly pocket the value I create?'"

"Many people think that a company's profitability depends on its size, its cash reserves, or how much social value it creates. But in my opinion, these are all smokescreens. The core of whether a company is profitable is its value capture capability—how much of the value it creates can reliably take for itself. That's the key."

To make it clearer, he broke down his theory into more specific parts: "If we consider value capture capability as Y, then scale, capital, and social value are X."

"Many people think like elementary school students doing arithmetic problems, believing that the larger X is, the larger Y will definitely be. They are thinking every day about how to make X bigger, serve more people, and create greater value, thinking that as long as X increases, Y will naturally follow suit."

At this point, Ernst suddenly raised his voice, his tone tinged with sarcasm, "But in my opinion, this is a completely foolish way of thinking. X and Y are not causally related at all, but rather two independent entities."

"Y is the key to whether a company can make money. If a company's ability to capture value is too weak, it is useless no matter how well X is done. That is not business, that is charity."

The audience quieted down considerably, and those who had been whispering just moments before fell into deep thought.

Just then, a voice suddenly drifted from below the stage, tentatively asking, "Could you elaborate?"

Today's speech wasn't the very formal kind; questions were allowed during the presentation, so no one was surprised.

Some people in the front row even turned around to look, hoping to see who was asking the question and who had answered it for everyone.

Ernst raised his chin in the direction the voice came from. "That's a good question."

As he spoke, he waved to the staff behind the scenes, speaking as casually as if he were entertaining guests in his own living room, "Could you please get me a chair? Let's skip the formalities of a speech today, that's too formal. Let's just chat like friends."

Staff quickly brought over a leather armchair, and Ernst plopped down, crossed his legs, and held the microphone in his hand, instantly transforming the serious atmosphere of the speech into a relaxed discussion.

"Then let me make a comparison between Google and the US aviation industry." Ernst cleared his throat. "In 1996, the US aviation industry had an annual revenue of $1650 billion, carrying millions of people in the air every day, from the East Coast to the West Coast, from big cities to small towns. Almost no one could live without it."

"In terms of social value, how many people's travel problems has it solved? In terms of industry scale, most industries have to take a backseat."

He paused, deliberately keeping everyone in suspense, "But do you know how much money such a large industry can make in a year?"

The people in the audience looked at each other, and Ernst, seeing their bewildered expressions, suddenly held up four fingers, his tone slightly mocking, "It's forty cents. That's only forty cents per passenger."

With a loud "boom," the audience erupted in chaos.

"Forty cents? That's not even enough to buy a bottle of water!"

"No way, a plane ticket costs at least a hundred dollars, and they only make forty cents?"

Ernst waited until everyone had finished discussing before continuing, "If we calculate based on three million passengers per day, the daily revenue and profit would only be $120 million, which would amount to about $4.4 million per year. And this money would be divided up by the entire American airline industry."

"Look at Google. Its annual revenue this year will definitely not surpass that of the airline industry, but if Google were to go public now, I would bet its market value would be three to five times greater than the total market value of all airlines in the United States."

No one can refute this point. Of the three major American airlines, Delta Air Lines has the highest market capitalization, but it is only $114 billion. The remaining two airlines, American Airlines and United Airlines, have market capitalizations of $44 billion and $12.8 billion, respectively.

FedEx, a major player in the aviation industry with a market capitalization of over $98 billion, made a significant contribution.

These four companies basically represent the entirety of the US aviation industry. The total market value of the entire aviation industry, including all its various branches, is only around 40 billion US dollars.

But if Google really goes public, a stock price of hundreds of billions of dollars would be severely undervalued, and it wouldn't be surprising if it broke through two hundred billion dollars.

Ernst leaned forward, his expression turning serious. "Why is there such a big gap? This brings us back to what I said at the beginning—competition is a game for losers."

"Airlines have been completely trapped in a competitive hell. If one airline dares to raise its ticket price by just one dollar, passengers will immediately buy tickets from other airlines. If you lower your price, I will lower mine, and in the end, no one makes any money. The ability to capture value is almost zero. It's like a pack of hungry wolves fighting over a piece of meat. In the end, they don't get the meat and they even hurt themselves."

"But Google is different. Google holds an absolute monopoly in many areas and has extremely strong pricing power. It doesn't have to worry about competition at all, so it can steadily capture more customer value."

The audience erupted in discussion again, some nodding in agreement, while others were still pondering the logic behind it.

Ernst wasn't in a hurry; he just sat in his chair and waited until a young man wearing glasses raised his hand and asked, "Do you mean that when we start a business, we should choose a field with less competition?"

"No, no, no," Ernst shook his finger. "In my opinion, there is no such thing as a middle layer in a company. Just like a person is either standing or lying down, there is no reason to squat."

"There are only two kinds of companies in the world. One is a monopoly, which controls its own pricing power. The other is a competitive company, which, no matter how many competitors there are, will eventually turn into a price war, fighting to the death. There is no such thing as a small competition."

He had barely finished speaking when a student sitting in the last row suddenly shouted, "But how many industries can truly be monopolized? And what if they face regulatory pressure and get investigated?"

Ernst couldn't help but laugh when he heard this, his face showing a "you're still too young" expression. "There are countless monopolistic enterprises, but only true monopolists will not admit that they have a monopoly."

"For example, a French restaurant might claim to be the only authentic French restaurant in the area. You might think it's just boasting about its authenticity, but what it's really trying to say is, 'I have a monopoly in this area. If you want to eat authentic French food, you can only come here.' This naturally increases its perceived value, and even if the prices are higher than other restaurants, customers are willing to pay."

"Look at Google and Microsoft. Microsoft's operating system accounts for 85% of the market, almost monopolizing the personal computer system, but it still says every day that it faces enormous pressure from its peers. Google is the same. Its search engine occupies most of the global market, but it always emphasizes that it must constantly innovate in order to cope with the competition."

"Monopoly does not mean the absence of competition; this is a concept that is easily confused. Competition among monopolistic enterprises is not about price wars with their peers, but about innovation, technology, and user experience, which they use to consolidate their monopoly position. Competition among competitive enterprises, on the other hand, is a low-level price war that ultimately leads to mutual destruction."

Just then, a familiar voice rang out, and the entire venue fell silent instantly.

"So how should one choose a path for starting a business? Many young people have ideas, but they don't know which direction to take."

Ernst hadn't expected even Levins to ask him a question personally. He shifted to a more comfortable position and his tone became serious. "My suggestion is to start with a very small market and find those areas that the giants look down on or don't understand."

Let me use my own company as an example: "Take YueDong Games, which I acquired. Before I acquired it, the game industry had been booming for two or three decades. From the earliest arcade games to the later home game consoles, and then to the gradually emerging PC games, the market had long been dominated by a few giants."

"But YueDong didn't compete with them for market share. Instead, it chose a niche area that is still considered niche today: online games."

"Although PC games are beginning to rise, they are still not as large as arcade and home console games, making them a niche within the gaming industry. Online games, on the other hand, are an even smaller niche, with the market almost entirely untapped."

"But that doesn't mean it has no market," Ernst shrugged. "On the contrary, online games are the future, and their potential is enormous."

"The Internet is just beginning to emerge, and people haven't realized it yet. In the future, people will spend more time online, which will naturally drive the development of PC games."

He looked at the young people below the stage with encouragement in his eyes: "The entrepreneurial opportunities on the Internet are beyond your imagination."

The giants are all eyeing the big market and looking down on small businesses, but these small businesses hold enormous potential.

"If you can find the right position, plant your flag in advance, and build your own moat, then your entrepreneurship is 90% successful."

, 7

At this point, Ernst stood up, walked back to the podium, held the microphone, and his tone suddenly became serious. "However, my biggest piece of advice is still: never start a business."

"Working for someone else is tough; you have to be mindful of your boss's mood and work overtime, but at least you don't have to live in fear. But what about starting your own business? You have to worry about your cash flow drying up, about competitors, about employees leaving. You can only say that starting your own business is something you'll regret for the rest of your life."

The people in the audience always felt that this guy was showing off, and they didn't see him showing any regret.

Some people joked, "The big shot is indeed a big shot. He's standing on the mountaintop saying that climbing is too tiring, while we're still at the foot of the mountain."

Ernst continued, "I know you don't believe me, but I'm sincerely advising you. However, if anyone really wants to start a business and has a good idea, as a USC alumnus, I will definitely encourage and support them."

"I've already discussed it with the university and we'll be setting up a USC entrepreneurship fund to provide venture capital assistance to alumni who have ideas and dreams but lack funding. Whether you want to do an internet project or a technology product, as long as your project has potential, we will invest."

This is the ultimate purpose of Ernst's speech: investment strategy.

Because of its relationship with Google, USC has significantly increased its investment in the computer field, and is producing increasingly outstanding talent.

Among these young people, there must be many who are unwilling to live an ordinary life and want to start their own businesses.

He established this fund not only to support alumni, but also to plan ahead and bring these promising entrepreneurs to his side. In the future, whether they are working in the Internet, technology, or other fields, they can form a powerful force that may even influence the entire Silicon Valley landscape.

So today's speech is not about promoting his business philosophy, but more like planting a seed that will grow into a towering tree in the future, adding an important chapter to his business empire.