Life is full of choices. Pepsi or Coke. iPhone or Android. Paper or plastic. Each decision reflects a consumer's core values, and the image she or he wants to project to the world.
Publicly traded companies, too, face an important choice: Nasdaq or New York Stock Exchange. Each one has its pluses and minuses. And increasingly, they're starting to fight over what companies list their shares where.
Twitter was just the latest mad scramble. Both exchanges desperately wanted a chance to host the highest-profile initial public offering of the year, even if it didn't add that much in market capitalization -- their reputations and prestige are at stake. This round, despite a last-minute trip by Nasdaq's CEO to Twitter's headquarters, went to the NYSE.
Consumer-facing internet companies have been particularly hotly contested, because of their buzz and potential for huge growth. Lately, the NYSE has been cleaning the Nasdaq's clock, picking up Yelp, LinkedIn, and Pandora when they went public.
It wasn't always this way.
Back in the 1970s, the Nasdaq started as a place where trades were executed by phone and displayed on an electronic board -- much faster and more efficient than running around like mad with pieces of paper, like your typical image of the floor of the New York Stock Exchange. Also, since it was newer and more tech savvy, it became a more welcoming place for some technology companies -- like oh, Microsoft and Apple -- that didn't fit with the NYSE's old-world prestige.
The NYSE "said to them, when they wanted to go public, 'come back when you grow up, and maybe we'll let you in the club,' " says Patrick Healy, who runs a consulting firm for companies deciding where to list. "Nasdaq said 'nah, we'll take you right now.' Nasdaq was there when they needed them, and they stayed."
The NYSE could get by for a long time on its prestige. Although listing fees are higher -- the NYSE costs about $250,000 up front, while the Nasdaq only charges between $50,000 and $75,000 -- academic analyses have shown that NYSE-listed firms tend to see their stock prices rise more and issue more debt and equity. Some Nasdaq-listed companies make the jump to the NYSE when they grow big enough to access capital more cheaply, but the Nasdaq has stayed the preferred home of venture capital-backed companies that wanted to go public at a lower price, which reduces losses in the event the company fails. The Nasdaq also attracts firms that are more comfortable with a high degree of automation, rather than insisting on the NYSE's practice of negotiating IPO auction prices with bankers before the actual event.
“If you actually talk to traders they would tell you they would rather open with the NYSE all day long," a banker told the Financial Times. "But plenty of companies are picking Nasdaq because they don’t need that level of control.”
The Nasdaq's process went wildly awry, of course, with Facebook's IPO, resulting in a $10 million fine from the Securities and Exchange Commission. That's given the NYSE even more of an edge in recruiting and poaching tech firms. Its market share in the sector has grown fivefold since since 2006, when it had only 10 percent of all tech IPOs, according to the FT.
Now, the exchanges engage in pitched battles over big-name companies going public, offering huge amounts of free advertising to sweeten the deals, says Healy (he negotiated Facebook's listing with the Nasdaq, among many others). A number of regulatory changes have made it easier to switch between exchanges, too -- and while more companies have jumped to the NYSE in recent years than have gone the other way, the Nasdaq has gained more in total market cap. Since NYSE's fees are calculated based on the number of shares outstanding, it's more expensive for larger firms to list there; companies like Kraft Foods (a blue-chip Dow stock!) and most recently Marriott have defected to the Nasdaq to save money.
For companies they really want, the exchanges have a few more bargaining chips -- like their business dealings with the companies themselves. According to Healy, the NYSE used a ton of Oracle software, and convinced company founder and chief executive Larry Ellison to leave the Nasdaq as a condition of renewing their contract. The NYSE tried a similar trick with Cisco Systems, offering a data center project to lure the hardware company, to no avail -- but Juniper Networks took the deal instead.
"You turn it into a business opportunity," Healy says.
Of course, there are only so many tech contracts to go around, so at a certain point the exchanges will have to compete on the merits.