ROCKEFELLER AND STANDARD OIL. The making of the worlds richest man, and one titan of a company.

Transcription

1 ROCKEFELLER AND STANDARD OIL The making of the worlds richest man, and one titan of a company.

2 WHY OIL? Whale oil had been used to light lamps in homes for hundreds of years, with whales becoming more scarce, it was getting too expensive. Kerosene, derived from petroleum, was a viable alternative. Oil had been collected as it seeped to the ground, but there had to be a better way to find it to make it cheap enough.

3 Another use for crude oil!!!

4 EDWIN DRAKE AND TITUSVILLE. PENNSYLVANIA Colonel Edwin Drake, not really colonel, was the first to successfully drill for and find oil in Titusville, PA. This set off an oil boom in PA, that rapidly spread around the nation.

5 DRAKE AND HIS WELL (1859)

6 How an oil well works: 1. Find underground features that usually hold oil. 2. Drill underground until pressure from natural gas forces oil to the top. 3. Cap the well, and slowly drain the pool of oil.

7 BENNINGHOF FARM (1860)

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15 OIL REFINING Oil is relatively worthless until it is REFINED, or put through a process that takes out impurities to make kerosene or gasoline( Gas was burned off or dumped in rivers in the days before the automobile!! Whoever refines the oil must get it to market, making refining the KEY part of the process. Lots of value is added to crude oil through these two areas (refining and transport). Lots of money can be made

16 HOW REFINING WORKS

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18 MOVING OIL DOWN THE ALLEGHENY

19 Early oil pipeline right-of-way (ROW) near Titusville, PA. The ROW has been cleared and the tong gang is busy screwing together the joints of pipe. Straight scars like this one became common in the oil regions as the crisscrossing network of pipelines were laid in the 1860's-70's and on. Photo from a postcard

20 ENTER JOHN D. ROCKEFELLER Rockefeller was not interested in drilling for and finding oil, only in refining it, transporting it, and marketing it under the Standard Oil name as a guarantee of quality. Lots of VALUE is added to oil in these areas, and his company became the biggest in the world by controlling these three areas of the energy business.

21 ROCKEFELLER BUSINESS PHILOSOPHY Always cut costs as much as possible to beat competitors. Bring your competition to their knees then buy them cheap. Get REBATES (low rates) from railroads to ship your product, or build pipelines to do it cheaper. Produce a high quality product with a brand name and price it lower than your competitors.

22 John D. Rockefeller

23 Standard Oil Office and Sign

24 STANDARD OIL The company started with one refinery in Cleveland, near Pennsylvania oil. It quickly grew as they bought out all of the competitors and consolidated into one large business. Rockefeller formed a corporation, then a TRUST to have complete control over the company and the oil market.

25 RAILROAD REBATES One of the most controversial business practice that Standard Oil used was to demand lower prices from its shippers, and even get rebates of money when its competitors used a railroad. (Yes, the railroads paid Rockefeller money from his competitors. Why would they do this? Simple, he was the biggest customer, so they needed his business. Many said this gave Rockefeller an unfair (and illegal) advantage over his rivals.

26 PREDATORY PRICING Predatory Pricing is when you sell your product at a price BELOW your production cost, actually losing money in an attempt to run your rivals out of business. Most companies could not afford to do this, but Standard could because they were so huge. They could afford to lose money in one area because they made so much in others. Often, they would raise prices after there were no competitors left, hurting the consumer with no choice and higher prices.

27 HORIZONTAL INTEGRATION Unlike Carnegie, Rockefeller made his business larger buy buying out all the refineries. He did not care to produce the oil, only to make it into something useful. This is called Horizontal Integration, unlike Vertical Integration where you want to own all pieces of an industry from raw materials to final product, Hor. Int is only interested in owning one sector of the industry. Think of McDonalds buying: Burger King, Wendy s, KFC, Taco Bell, Panera, etc.

28 MARKET SHARE OF STANDARD OIL (Refining) 0 REFINING MARKET REFINING MARKET ALL OTHERS STANDARD

29 VALUE OF THE STANDARD OIL COMPANY Series Series Value of Company Value of Company

30 Dividends are profits paid to company shareholders. What trend do we see?

31 HOW DID ROCKEFELLER BECOME THE RICHEST MAN IN THE WORLD? He used the profits of the company to buy out all of his competitors. He found the lowest cost methods to refine and ship his product. By forming a trust, he was able to include many of his former competitors into his company as shareholders. They made money too, so they did not ALWAYS mind being bought out. By 1900 Standard Oil controlled 92% of the entire national kerosene market. It was the biggest company in the world.

32 Share of Standard Oil stock, you could purchase stock in the company and share the profits.