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> [Google]’s scalability is effectively infinite, because serving additional customers is a function of fixed costs, not transaction costs; it really is not com

> [Google]’s scalability is effectively infinite, because serving additional customers is a function of fixed costs, not transaction costs; it really is not comparable to Amazon at all, in this regard, as the companies’ respective market shares demonstrates. > The same reality applies to Google’s marginal costs (including distribution); while Google spends a tremendous amount of fixed costs on its data centers and networking, any one search is “free”, including Google accepting the search term, computing the result, and delivering it to the user. Doesn’t google spend some insane amount on infra? This argument could be made identically for the old retailer down on the street corner by my house. Once you’ve bought the building and fixed the roof and bought all your merch, handing over that t shirt in exchange for cash is free. It’s better than free, even, since people are literally just giving you money for stuff you don’t have to spend any more marginal dollars on! But if I want to keep doing business, I’ll have to keep paying my mortgage, and paying my sales reps and if I want to grow, I’ll need more space (maybe another storefront per thousand transactions per month?), etc, just like if google wants to grow, they need more sales reps and more land in Mountain View, and for more customers and queries (maybe a new data center per gajillion queries per month, or per upgrade to costlier search processing expensive neural network layer?). Without commenting on the rest, OP is throwing a lot into fixed costs. You can’t say it’s near zero when the revenue is also near zero. And you also can’t examine the costs in a way justifies zero marginal costs, pointing at the cost of someone who walks into and out of the retailer without buying anything, which is also basically zero (your typical user who never clicks an ad). Maybe the most apt comparison is a nail making factory or even to AWS where, once you’ve bought a data center, renting it to your customers is free, but that’s not a useful viewpoint. The cost of one single marginal call to your AWS lambda is basically zero, but basically zero times basically infinity is a good old traditional number again.

migueloller 6y ago
Well, I guess you could say that if the store was run by robots so you didn't have to pay employees and if the shirts were made out of thin air so that there are no COGS. I'm not trying to be facetious. I think the distinction between marginal and fixed costs is important here because it's all about the feedback loop for aggregators. And one can think of marginal costs as "friction" in this loop. That being said, perhaps aggregation theory won't be complete until Ben considers fixed costs in addition to marginal costs, which I believe might be your argument?
- 6gvONxR4sf7o 6y ago
  My point is that he’s calling certain costs fixed that I would call marginal. For COGS or data centers you have to choose something to amortize over. For a traditional good, it’s the lifecycle of the physical product. For a data center, you could amortize it relative to its capacity, maybe? Or cost per ad dollar sold, rather than per query? It really depends on the question you’re asking, as fixed or marginal is really fixed or marginal with respect to some factor. It’s unclear what the correct way to do it is, but it’s clear to me that calling it fixed is wrong, relative to the specific points he’s making. I’d look at how AWS looks at its data center costs and apply that model. Google Search may not be renting infra to searchers, but that’s not the important distinction.
- TheOtherHobbes 6y ago
  Aggregation theory is nonsense. Not all costs are technological, and similarly not all customer costs are direct. While aggregators exist, you can't understand the market-distorting effects of monopoly without appreciating the entire picture of capital flows within the system from surrounding businesses to the monopolist. The second order effects are at the heart of antitrust action. Monopolists distort markets in ways that force everyone to pay extra even if they do not pay the monopolist directly. For a trivial example, consider that dealing with SEO is a huge and expensive problem for any startup. If you don't appear in listings - preferably by buying ad spend - you may as well not exist. Someone has to pay for that, and those costs will be passed on to customers in most Internet transactions. How much they pay is strongly influenced by Google's choices. If search wasn't a monopoly those costs would be lower because there would be competition. This is far from the only example of a market-distorting effect that generates extra costs for businesses and customers because of an online monopoly.
sumtechguy 6y ago
It is not free. Ongoing costs are there. They are small per item but still there. Do not confuse opex with capex. they are easy to muddle together especially at first. things like that leaky roof that needs to be fixed, someone to clean the floors, someone to run the register, AC costs, taxes (property and sales), modernization (you do not want your store to look like something from the 60s when everyone else is newer looking), etc Some of those items are operating expense, some are capital expense.

migueloller 6y ago

Well, I guess you could say that if the store was run by robots so you didn't have to pay employees and if the shirts were made out of thin air so that there are no COGS. I'm not trying to be facetious. I think the distinction between marginal and fixed costs is important here because it's all about the feedback loop for aggregators. And one can think of marginal costs as "friction" in this loop. That being said, perhaps aggregation theory won't be complete until Ben considers fixed costs in addition to marginal costs, which I believe might be your argument?

6gvONxR4sf7o 6y ago
My point is that he’s calling certain costs fixed that I would call marginal. For COGS or data centers you have to choose something to amortize over. For a traditional good, it’s the lifecycle of the physical product. For a data center, you could amortize it relative to its capacity, maybe? Or cost per ad dollar sold, rather than per query? It really depends on the question you’re asking, as fixed or marginal is really fixed or marginal with respect to some factor. It’s unclear what the correct way to do it is, but it’s clear to me that calling it fixed is wrong, relative to the specific points he’s making. I’d look at how AWS looks at its data center costs and apply that model. Google Search may not be renting infra to searchers, but that’s not the important distinction.
TheOtherHobbes 6y ago
Aggregation theory is nonsense. Not all costs are technological, and similarly not all customer costs are direct. While aggregators exist, you can't understand the market-distorting effects of monopoly without appreciating the entire picture of capital flows within the system from surrounding businesses to the monopolist. The second order effects are at the heart of antitrust action. Monopolists distort markets in ways that force everyone to pay extra even if they do not pay the monopolist directly. For a trivial example, consider that dealing with SEO is a huge and expensive problem for any startup. If you don't appear in listings - preferably by buying ad spend - you may as well not exist. Someone has to pay for that, and those costs will be passed on to customers in most Internet transactions. How much they pay is strongly influenced by Google's choices. If search wasn't a monopoly those costs would be lower because there would be competition. This is far from the only example of a market-distorting effect that generates extra costs for businesses and customers because of an online monopoly.

sumtechguy 6y ago

It is not free. Ongoing costs are there. They are small per item but still there. Do not confuse opex with capex. they are easy to muddle together especially at first. things like that leaky roof that needs to be fixed, someone to clean the floors, someone to run the register, AC costs, taxes (property and sales), modernization (you do not want your store to look like something from the 60s when everyone else is newer looking), etc Some of those items are operating expense, some are capital expense.