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Over the last year, I've really changed how I think about "tech giants," their competition with other parts of the economy, and what it all means. The realizati

Over the last year, I've really changed how I think about "tech giants," their competition with other parts of the economy, and what it all means. The realization we'll see 3-5 trillion-dollar tech giants very soon triggered it. Let's take Thiel's startup = monopoly statement seriously for a minute. He didn't mean monopoly in the traditional/legalistic sense. He meant dominating some niche, so that ordinary "margins trend towards 0" rule doesn't apply. 0-marginal costs helps. Network effects too. MSFT are a platform, distanced from market forces by network effects and lock-in. Google & Amazon are middle-men, aggregators and platforms distanced from market forces by network effects. FB is all network effects. The reason Uber could raise so much money was because they seemed to have a good chance of "dominating" a market, and playing the middle-man between taxis and passengers everywhere, forever. A 1% chance at a one trillion dollar market cap.. that's worth ten billion. For a chance at a piece of a thiel-monopoly on cars, investors will happily bankroll big loses. Big enough to sink competition. When you are playing for a trillion-dollar monopoly, losses don't matter. I dunno what to think of competition like this, at scale. This is a different flavour of capitalism. In any case, neither side wants normal, textbook laissez faire markets. One side is playing for monopoly. The other side is playing for structural stasis via legislation/regulation.

smeyer 9y ago
>playing the middle-man between taxis and passengers everywhere, forever. A 1% chance at a one trillion dollar market cap Investors in Uber had to be hoping for either a larger than 1% chance, expanding beyond taxis, fundamentally growing the taxi market, or all of the above. The existing taxi market has a total market cap of well under a trillion dollars, even including companies like Uber. The total US stock market only has a combined market cap of about 30 trillion, so I think you're overestimating the number of trillion dollar market cap industries that exist and the extent to which investors are gambling on success having payoffs quite that high.
- dalbasal 9y ago
  True, the actual outcomes and probabilities are complicated, and there are many success scenarios where uber doesn't yield a trillion dollar market cap. I was being simplistic, to demonstrate the principle. Apple, Amazon & Apple are headed towards that trillion now, so I think this is a possibility, and possibilities drive investment. If the stock market itself stays good, it is almost inevitable one of the three will tip that number soon. Once one does, I'd expect a half dozen within a decade. On the taxi market cap... This is an interesting one. I agree that uber had their eye on more/bigger opportunities (especially self driving), but ignoring that... The market cap of an industry is not only related to its size. It's related to the margins, lock-in and other attributes of the companies operating within it. Also, debt & capital efficiency. A more competitive market may have lower market caps, because margins are thinner and companies can fail. IE, while market cap of the industry might be Y, "an uber" dominating that industry might still achieve a market cap of 5Y.
- sophacles 9y ago
  I don't know... Uber (et al) opened a lot of people to the "lets a hire a driver" mindset. Outside of some major urban centers, the idea of taking a cab was just weird. Uber came a long and suddenly people were taking them everywhere. Not just people who would have otherwise taken a cab, but people who otherwise would have driven themselves. This is just anecdata from my observations and discussions with others who had similar observations. But it would be interesting to find real numbers on this.
  - ghaff 9y ago
    My experience is that outside of "major urban centers," Ubers are pretty thin on the ground. I live about 40 miles outside of Boston and the couple of times I've looked, there's been little or nothing available around me.
    - Jonnax 9y ago
      Are your local taxi services better than Uber?
      - ghaff 9y ago
        I assume they're not very good although I've never used them. But given that Uber doesn't seem to be a practical option, I guess they're better?
- gutnor 9y ago
  Especially seen from the US: I think that investor thinks that Uber is the future of transport, period. The replacement for buses, local train, taxi, car rental, car ownership. In that world, cities pour money in Uber instead of their failing bus/metro public services. Car manufacturer and insurer are commodities behind Uber, driving is either automated or as cheap as legally possible, but also commodity behind Uber. Basically Uber would be in control of the totality of money for transporting people semi-locally from A to B, which means the lion share of the margin. That's worth 1 trillion or more, even if Uber does not manage everything.
- golergka 9y ago
  Me and everyone I know have barely ever taken taxis before the taxi apps arrived. It was a long wait, expensive and quality sucked. And if you hailed a cab on the street, you had two options: expensive or incredibly shitty (unoficial ones). Now it's common to order an Uber everywhere, few times a day. Open competition brought prices down, short wait removed the barrier, and star feedback have had a very significant effect on quality. It's not just monopolizing existing market, it's improving it for customers.
erikpukinskis 9y ago
> This is a different flavour of capitalism. It’s capitalism outside of time. A company isn’t seen a a slice in time, it’s seen as a cone of futures. https://upload.wikimedia.org/wikipedia/commons/thumb/1/16/World_line.svg/1200px-World_line.svg.png https://upload.wikimedia.org/wikipedia/commons/thumb/1/16/Wo...
losteric 9y ago
Lately I've been thinking about economics from an ecology perspective. I think the "other side" of the problem is consolidation and deregulation of the banking industry. Stagnating markets look like farms, clear-cut native ecosystems replaced with massive monocultures that actively suppress competition using artificial techniques. Building a farm is a gamble. It requires identifying a good crop, large up-front investment in clear-cutting, and ongoing investments in regulating competition. Everything looks like a nail when all you have is a hammer... well, big banks naturally take this path because they have lots of money and connections to political power. An innovative market is like a jungle, diverse competition of many specialized organisms for innumerable niches... when one species fails, another immediately takes it's place. Local banks invest in smaller businesses with low-overall risk and consistent ROI. These banks work with the marketplace. They are analogous to fungi in forest ecosystems, which have symbiotic relationships with the trees that serve as the forest's foundation ([1])... a jungle market, with sustainable innovative competition, emerges from networks of small local banks. We must rigorously defend competition in the banking industry because it shapes the rest of the economy. [1] Listen to https://www.radiolab.org/story/from-tree-to-shining-tree/ https://www.radiolab.org/story/from-tree-to-shining-tree/ , or if you don't have time skim https://jgi.doe.gov/retracing-roots-fungal-symbioses/ https://jgi.doe.gov/retracing-roots-fungal-symbioses/
clairity 9y ago
> "I dunno what to think of competition like this, at scale. This is a different flavour of capitalism." it's not a different flavor, it's simply not capitalism. it's more akin fascism where wealth concentrates in the few, who then turn around and wield that as power through the state. our duty as citizens is to be vigilant against these sorts of concentrations, and counter-act them through democratic, social, and economic means (e.g., the recent sentimental shift regarding facebook). > "...normal, textbook laissez faire markets..." "normal" is so highly relativist to be meaningless (and "textbook" is redundant to it), and "laissez faire" is quite ambiguous. markets require rules because people will disagree and get into fights otherwise (if i have a gun, should i be able to shut you down?), so even a free market has regulations. rather than throwing out such loaded terms, let's debate which regulations will lead to a more stable and fair market. let's favor small businesses over large (e.g., remove corporate welfare and rein in the corporate veil) to minimize corruption and encourage innovation. let's make taxes more progressive (larger businesses benefit disproportionately from government spending, so it's only fair). let's level the playing field, which in a sense is another way of saying let's moderate those network effects.
mbesto 9y ago
@trengriffin has some fascinating tweets on the economics of software companies that speak to this. This is my favorite: There is no place in financial accounting for the concept of network effects, or the increase in the value of a resource with its use. This actually implies negative depreciation expense in accounting parlance. the fundamental idea behind the success of digital companies (increasing returns to scale) goes against a basic tenet of financial accounting (assets depreciate with use). For digital companies, the bulk of the cost of building an idea-based platform is reported as an expense https://hbr.org/2018/02/why-financial-statements-dont-work-for-digital-companies https://hbr.org/2018/02/why-financial-statements-dont-work-f... https://twitter.com/trengriffin/status/969042566019612677 https://twitter.com/trengriffin/status/969042566019612677
loceng 9y ago
"... losses don't matter" unless perhaps it's directly your own money and if you care or consider the opportunity costs, where else could have that money gone?

smeyer 9y ago

>playing the middle-man between taxis and passengers everywhere, forever. A 1% chance at a one trillion dollar market cap Investors in Uber had to be hoping for either a larger than 1% chance, expanding beyond taxis, fundamentally growing the taxi market, or all of the above. The existing taxi market has a total market cap of well under a trillion dollars, even including companies like Uber. The total US stock market only has a combined market cap of about 30 trillion, so I think you're overestimating the number of trillion dollar market cap industries that exist and the extent to which investors are gambling on success having payoffs quite that high.

dalbasal 9y ago
True, the actual outcomes and probabilities are complicated, and there are many success scenarios where uber doesn't yield a trillion dollar market cap. I was being simplistic, to demonstrate the principle. Apple, Amazon & Apple are headed towards that trillion now, so I think this is a possibility, and possibilities drive investment. If the stock market itself stays good, it is almost inevitable one of the three will tip that number soon. Once one does, I'd expect a half dozen within a decade. On the taxi market cap... This is an interesting one. I agree that uber had their eye on more/bigger opportunities (especially self driving), but ignoring that... The market cap of an industry is not only related to its size. It's related to the margins, lock-in and other attributes of the companies operating within it. Also, debt & capital efficiency. A more competitive market may have lower market caps, because margins are thinner and companies can fail. IE, while market cap of the industry might be Y, "an uber" dominating that industry might still achieve a market cap of 5Y.
sophacles 9y ago
I don't know... Uber (et al) opened a lot of people to the "lets a hire a driver" mindset. Outside of some major urban centers, the idea of taking a cab was just weird. Uber came a long and suddenly people were taking them everywhere. Not just people who would have otherwise taken a cab, but people who otherwise would have driven themselves. This is just anecdata from my observations and discussions with others who had similar observations. But it would be interesting to find real numbers on this.
- ghaff 9y ago
  My experience is that outside of "major urban centers," Ubers are pretty thin on the ground. I live about 40 miles outside of Boston and the couple of times I've looked, there's been little or nothing available around me.
  - Jonnax 9y ago
    Are your local taxi services better than Uber?
    - ghaff 9y ago
      I assume they're not very good although I've never used them. But given that Uber doesn't seem to be a practical option, I guess they're better?
gutnor 9y ago
Especially seen from the US: I think that investor thinks that Uber is the future of transport, period. The replacement for buses, local train, taxi, car rental, car ownership. In that world, cities pour money in Uber instead of their failing bus/metro public services. Car manufacturer and insurer are commodities behind Uber, driving is either automated or as cheap as legally possible, but also commodity behind Uber. Basically Uber would be in control of the totality of money for transporting people semi-locally from A to B, which means the lion share of the margin. That's worth 1 trillion or more, even if Uber does not manage everything.
golergka 9y ago
Me and everyone I know have barely ever taken taxis before the taxi apps arrived. It was a long wait, expensive and quality sucked. And if you hailed a cab on the street, you had two options: expensive or incredibly shitty (unoficial ones). Now it's common to order an Uber everywhere, few times a day. Open competition brought prices down, short wait removed the barrier, and star feedback have had a very significant effect on quality. It's not just monopolizing existing market, it's improving it for customers.

erikpukinskis 9y ago

> This is a different flavour of capitalism. It’s capitalism outside of time. A company isn’t seen a a slice in time, it’s seen as a cone of futures. https://upload.wikimedia.org/wikipedia/commons/thumb/1/16/World_line.svg/1200px-World_line.svg.png https://upload.wikimedia.org/wikipedia/commons/thumb/1/16/Wo...

losteric 9y ago

Lately I've been thinking about economics from an ecology perspective. I think the "other side" of the problem is consolidation and deregulation of the banking industry. Stagnating markets look like farms, clear-cut native ecosystems replaced with massive monocultures that actively suppress competition using artificial techniques. Building a farm is a gamble. It requires identifying a good crop, large up-front investment in clear-cutting, and ongoing investments in regulating competition. Everything looks like a nail when all you have is a hammer... well, big banks naturally take this path because they have lots of money and connections to political power. An innovative market is like a jungle, diverse competition of many specialized organisms for innumerable niches... when one species fails, another immediately takes it's place. Local banks invest in smaller businesses with low-overall risk and consistent ROI. These banks work with the marketplace. They are analogous to fungi in forest ecosystems, which have symbiotic relationships with the trees that serve as the forest's foundation ([1])... a jungle market, with sustainable innovative competition, emerges from networks of small local banks. We must rigorously defend competition in the banking industry because it shapes the rest of the economy. [1] Listen to https://www.radiolab.org/story/from-tree-to-shining-tree/ https://www.radiolab.org/story/from-tree-to-shining-tree/ , or if you don't have time skim https://jgi.doe.gov/retracing-roots-fungal-symbioses/ https://jgi.doe.gov/retracing-roots-fungal-symbioses/

clairity 9y ago

> "I dunno what to think of competition like this, at scale. This is a different flavour of capitalism." it's not a different flavor, it's simply not capitalism. it's more akin fascism where wealth concentrates in the few, who then turn around and wield that as power through the state. our duty as citizens is to be vigilant against these sorts of concentrations, and counter-act them through democratic, social, and economic means (e.g., the recent sentimental shift regarding facebook). > "...normal, textbook laissez faire markets..." "normal" is so highly relativist to be meaningless (and "textbook" is redundant to it), and "laissez faire" is quite ambiguous. markets require rules because people will disagree and get into fights otherwise (if i have a gun, should i be able to shut you down?), so even a free market has regulations. rather than throwing out such loaded terms, let's debate which regulations will lead to a more stable and fair market. let's favor small businesses over large (e.g., remove corporate welfare and rein in the corporate veil) to minimize corruption and encourage innovation. let's make taxes more progressive (larger businesses benefit disproportionately from government spending, so it's only fair). let's level the playing field, which in a sense is another way of saying let's moderate those network effects.

mbesto 9y ago

@trengriffin has some fascinating tweets on the economics of software companies that speak to this. This is my favorite: There is no place in financial accounting for the concept of network effects, or the increase in the value of a resource with its use. This actually implies negative depreciation expense in accounting parlance. the fundamental idea behind the success of digital companies (increasing returns to scale) goes against a basic tenet of financial accounting (assets depreciate with use). For digital companies, the bulk of the cost of building an idea-based platform is reported as an expense https://hbr.org/2018/02/why-financial-statements-dont-work-for-digital-companies https://hbr.org/2018/02/why-financial-statements-dont-work-f... https://twitter.com/trengriffin/status/969042566019612677 https://twitter.com/trengriffin/status/969042566019612677

loceng 9y ago

"... losses don't matter" unless perhaps it's directly your own money and if you care or consider the opportunity costs, where else could have that money gone?