What is a Cash Cow?
A cash cow is a business venture which generates a steady return of profits which far exceed the outlay of cash required to acquire or start it. Many businesses attempt to create or acquire cash cows, since they can be used to boost a company's overall income and to support less profitable ventures. 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 “cash cow” emerged around the 1970s.
Several features distinguish a cash cow. The first is the relatively small capital outlay and maintenance costs. A cash cow also typically represents significant competition in its market, and it typically generates innovative and interesting products which capture ever-larger market shares. Cash cows tend to attract customers with an array of products and favorable pricing schemes, although some cash cows also sell more expensive products; Apple's famous iPod line is a classic example of a cash cow in the technology sector.
Although a cash cow can be very beneficial for its parent businesses, there are some cautions involved in dealing with cash cows. One of the major problems that companies face is complacency when handling their profitable cash cows. For a cash cow to succeed, a company needs to respond to changes in the market, ensuring business growth and a dependable flow of cash. If a cash cow is allowed to remain stagnant, other companies will capture its market share.
The term “cash cow” is also used in a totally different context, to refer to companies or organizations which have no control over their spending. In this sense, sections of a government budget like defense may be called cash cows, in a reference to the fact that taxpayers are being milked to pay for them. The implication with this sort of cash cow is that funds are being inefficiently and poorly used.
Written by S.E. Smith
