Scale Advantage – Suspending The Laws of Economics

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In their recent episode of the VALUE: After Hours Podcast, Taylor, Brewster, and Carlisle discussed Scale Advantage – Suspending The Laws of Economics. Here’s an excerpt from the episode:

Jake: And there’s that, yes, there’s all this demand, and I think that will probably continue, but we’ll go back to that total eventual supply as well. I think, if they’re that great businesses historically that attracts competitors, and that’s I mean–

Bill: I don’t know that that’s true anymore, man.

Jake: Oh, come on.

Bill: The reason that I say–

Jake: We have not suspended the laws of economics [crosstalk]

Bill: I think you may be wrong. I really do. And I think that the reason that I say that is I think that there is a very real possibility that we’re building out global infrastructure and scale advantages have always been something that have won, and I think that the size that people are racing to may preclude competition in the future. That’s a pretty dystopian outcome, because I think it’s really bad for labor and people generally. I think it’s potential outcome.

Jake: So, do you mean Standard Oil, and AT&T, and all these [crosstalk] who has huge scale and network effects?

Bill: Well, what I would say is different about Standard Oil and something like Salesforce is switching costs. I don’t think that Standard Oil’s oil was any different than Saudi Arabia’s oil. I think that pulling out an entire enterprise resource system is really, really painful and to get somebody to do that, you better offer a way, way, way better product, especially since you’ve got all these people that are going to get fired if it goes wrong. These companies are racing to get install bases, and that could be really valuable for a very long time. I think you have to at least acknowledge the possibility. If you’re thinking in probabilities, I think saying no is not thinking.

Jake: I think where we differ is on timelines, I would imagine. I think you’re right over maybe– I’m not sure what the timeline would be, and based on our extinction conversation, the timeline might be longer than I should originally think. But eventually, I don’t believe that these are impenetrable moats.

Bill: Yeah. 200 years, fine.

Jake: [laughs] 200 years.

Bill: But we just determined that that’s not that long of a timeline. So, it’s not impossible that’s the outcome here.

Jake: That would be wild.

Bill: It’s a global game. If you get scale, it’s cost advantages.

Bill: I think there’s probably-

Bill: [crosstalk] Buffet looks for.

Jake: -there’s got to be too much tribalism to have total global scale.

Tobias: Yeah, that’s what I was going to say. It’s two poles. So, it’s going to be east and west.

Bill: Yeah.

Jake: Yes, it’s hard to imagine that there’s not some blowback there in some geopolitical way where you don’t actually have full global scale.

Bill: Well, this is what I worry about. If you talk about risk that’s completely underpriced, I think that this could lead to huge– If the theory that I just laid out is correct, I think you could lead to real bad political outcomes because you’re going to have so many people that are just left behind. I heard somebody quote Chris Sacca or whatever that, there’s going to be like 10 people that own everything and the rest of the world is going to rent. I don’t think that the populace is going to stand for that. But you know what? I can’t do anything about that. Those are big thoughts that are in my opinion.

Jake: I’m not sure I’d want to be one of those 10 at that point, would you?

Bill: Oh, no.

Tobias: [laughs]

Bill: Not really.

Tobias: You’re living on Mars?

Jake: Okay, that’s fair enough.

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