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What is a Cash Cow?
Mary McMahon
Mary McMahon
A cash cow is a business venture that generates a steady return of profits that far exceed the outlay of cash required to acquire or start it. Many businesses attempt to create or acquire such ventures, since they can be used to boost a company's overall income and to support less profitable endeavors. The term is also sometimes used in a derisive way, usually in a discussion of the complacency of a company about a profitable product.
The classic example of a cash cow is a milk cow. Milk cows require a small capital outlay when they are acquired, and minimal maintenance costs afterwards. In return for their low maintenance costs, milk cows generate milk throughout their adult lives, along with calves. Since the 1600s, people were using “milch cow” to refer to a profitable venture; the modern term emerged around the 1970s.
Several features distinguish such a venture. The first is the relatively small capital outlay and maintenance costs. It also typically represents significant competition in its market, and it usually generates innovative and interesting products that capture ever-larger market shares. Cash cows tend to attract customers with an array of products and favorable pricing schemes, although some also sell more expensive products; Apple's famous iPod line is a classic example in the technology sector.
Although a cash cow can be very beneficial for its parent businesses, there are some cautions involved in dealing with it. One of the major problems that companies face is complacency when handling their profitable ventures. For one to succeed, a company needs to respond to changes in the market, ensuring business growth and a dependable flow of cash. If it is allowed to remain stagnant, other companies will capture its market share.
The term is also used in a totally different context, to refer to companies or organizations that have no control over their spending. In this sense, sections of a government budget, like defense, may be referred to with this term, in a reference to the fact that taxpayers are being milked to pay for them. The implication is that funds are being inefficiently and poorly used.
Mary McMahon
Ever since she began contributing to the site several years ago, Mary has embraced the exciting challenge of being a WiseGEEK researcher and writer. Mary has a liberal arts degree from Goddard College and spends her free time reading, cooking, and exploring the great outdoors.
Learn more...
Mary McMahon
Ever since she began contributing to the site several years ago, Mary has embraced the exciting challenge of being a WiseGEEK researcher and writer. Mary has a liberal arts degree from Goddard College and spends her free time reading, cooking, and exploring the great outdoors.
Learn more...AS FEATURED ON:
AS FEATURED ON:
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![The iPod served as a cash cow for Apple Corporation throughout the 2000s.]()
By: pizuttipicsThe iPod served as a cash cow for Apple Corporation throughout the 2000s. -
![A cash cow generates a steady return of profits that far exceed the outlay of cash required to acquire or start it.]()
By: fotoatelieA cash cow generates a steady return of profits that far exceed the outlay of cash required to acquire or start it.
Discussion Comments
@parkthekarma - That is an interesting definition and I had also never really though of it that way. Once the concept was in my head though examples seemed to pop up all over the place.
I know that both my bank and my insurance company will use almost any opportunity to slap me with fees or to raise my rates. My cell phone bill also seems to be constantly going up without me using my cell phone any more than before. It is easy to bury these things in the fine print so that we never know they are there. Its like a cash cow being milked by invisible hands.
I once read an article about a company mismanaging a cash cow and struggling because of it. I'm sure we all remember Crocs, those brightly colored rubber shoes that somehow ended up in all of our closets a few years ago. Well when Crocs first came out they soled like crazy.
They were cheap to produce, had few competitors and made a *ton* of money for the parent company. But pretty soon everyone had at least one pair of Crocs and the market was flooded with imitators. The proverbial cash cow had run out of milk. The company looked for new ways to make money, selling t-shirts and other specialized apparel but none of these caught on the way that the original Crocs had. Because they failed to manage their brand and diversify their offerings, a once strong and unique company fell on hard times.
I like the second definition. It's one I had not heard before, but it makes sense. A company or organization can treat its customer base (or worse, the taxpayers) like a cash cow and take the money for granted. Unlike the more traditional definition, hopefully the ones being milked figure it out in time to put a stop to it.
@Viktor13 - I agree completely. Apple's handling of the success of the iPod (and later the iPhone) is really what anyone should do when they find themselves with a moneymaker like that. Use it to keep developing new ideas instead of just a source for fast cash that will eventually run out on you.
The iPod is a great example of a cash cow's success covering other things a company wants to do. Apple had been in real financial trouble not long before it came out. The success of the iPod gives them a ton of stability to keep rolling out innovative new products and pushing the boundaries of technology.
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