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Good point - start-ups do create new wealth. So I wondered - where does that wealth come from? In the web world, it comes (ultimately) from the healthy growth i

Good point - start-ups do create new wealth. So I wondered - where does that wealth come from? In the web world, it comes (ultimately) from the healthy growth in user count, and the time they are spending on the web (which makes them either more productive or entertain themselves better or both). The web wealth also comes, to an extent, at the expense of some old wealth destroyed, like newspaper, TV etc. Finally, some of the new web wealth is also the effect of old web wealth being transferred - recent Yahoo acquisitions seem like a case of this to me, because Yahoo itself is declining in value, but they keep buying companies as they do so, effectively transferring their wealth to a new generation of start-ups. There is natural demand growth for start-ups due to these factors, which manifest themselves as new acquirers springing up - as an example Google wasn't a factor in the last bubble as an acquirer, and may be Facebook will be very acquisitive soon. So my question can be rephrased as: are we outrunning that demand growth in terms of supply of start-ups? It seems to be so sometimes. And in a recession demand growth could temporarily reverse too ...

bokonist 19y ago
The real limits are economies of scale. If more and more people leave big companies to do startups, big companies may be forced to raise their salaries. Google might pay a smart hacker far more than the hacker would make on average in a startup, because Google can leverage the hacker's talents across its enormous user base. Economies of scale are based on transaction costs versus measurement costs ( http://en.wikipedia.org/wiki/Theory_of_the_firm http://en.wikipedia.org/wiki/Theory_of_the_firm ). Transaction costs have declined dramatically with improvements in IT infrastructure, but measurement costs have changed relatively little. In fact, measurement costs in knowledge industries are very high. Thus I expect startups will continue to become more popular. It is true that specific technologies saturate. Browser based AJAX may run its course in a few years, but there will be new platforms to replace it.
mdemare 19y ago
You think of wealth as money. That's the wrong way to look at it. Wealth is value added for people or companies. If you create a web-app that saves a company money, then you've created wealth. The demand that companies have for saving money is unlimited. The limits are on the supply side: Can you think of a web app that saves a company money? On the consumer side, it's basically the same. If you can save customers time, or money, if you can entertain them, or educate them, or make their lives better in any way, then you've created wealth. Again, the demand for a better living through web-apps is unlimited. The limits are on our side - how much can we deliver? If you have really created wealth, step two is how to monetize it. That's where Google and Yahoo come in. But that's another issue altogether.

bokonist 19y ago

The real limits are economies of scale. If more and more people leave big companies to do startups, big companies may be forced to raise their salaries. Google might pay a smart hacker far more than the hacker would make on average in a startup, because Google can leverage the hacker's talents across its enormous user base. Economies of scale are based on transaction costs versus measurement costs ( http://en.wikipedia.org/wiki/Theory_of_the_firm http://en.wikipedia.org/wiki/Theory_of_the_firm ). Transaction costs have declined dramatically with improvements in IT infrastructure, but measurement costs have changed relatively little. In fact, measurement costs in knowledge industries are very high. Thus I expect startups will continue to become more popular. It is true that specific technologies saturate. Browser based AJAX may run its course in a few years, but there will be new platforms to replace it.

mdemare 19y ago

You think of wealth as money. That's the wrong way to look at it. Wealth is value added for people or companies. If you create a web-app that saves a company money, then you've created wealth. The demand that companies have for saving money is unlimited. The limits are on the supply side: Can you think of a web app that saves a company money? On the consumer side, it's basically the same. If you can save customers time, or money, if you can entertain them, or educate them, or make their lives better in any way, then you've created wealth. Again, the demand for a better living through web-apps is unlimited. The limits are on our side - how much can we deliver? If you have really created wealth, step two is how to monetize it. That's where Google and Yahoo come in. But that's another issue altogether.