Why Business is Winner Take All

One of my favorite writings on investing, it's not actually about investing, but it's this guy Brian Arthur, and he wrote something called Increasing Returns in the New World of Business, and that was in the mid-'90s. And he made the observation that with the new world, with the new distribution models of things like the Internet and whatever, the best companies could continue to get bigger and bigger, whereas, uh, you were sort of capped out more in the old world. And so you would have diminishing returns to scale over time. And by the way, that couldn't have been more right. You look at markets over the subsequent, you know, couple decades, and you have companies like Apple and Amazon and, and, you know, Google and Microsoft that just continue to get bigger and bigger. And, you know, they're-- I think a lot of that comes from the fact that they're just continue to dominate more and more of, of various markets.

This is one of my favorite pieces of trivia of all time about that paper. Brian Arthur was friends with Cormac McCarthy, the author who wrote All the Pretty Horses and No Country for Old Men, and Cormac helped shape the prose in that piece.

Oh, very interesting.

One of the reasons why it's very successful.

Well, yeah. I guess for an economist, it was extremely well-written.

Before I lose the opportunity, I just wanna add one thing to Andrew's list of criteria for success in this continued expansion mode, and that is companies that, that are able to avoid the, uh, negative effects of success. You have to stay lean and flexible and unbureaucratic and future-looking.

But Andrew, you're pointing out this really interesting thing where you have two opposing forces that have butting heads. One is now we have globally addressable markets, so TAMs are bigger, therefore market caps can be bigger. And at the same time, you have competition happens faster than ever because paradigms change faster than ever. And so therefore, the future is less certain than it's ever been, despite the fact that the opportunity for any given business is the largest it's ever been.

Yeah. And by the way, I wouldn't just say global markets, I would say, you know, strategically adjacent markets as well. Again, look at the big companies and how they continue to step out and do more and more in things that are, you know, tangential to, to their, their existing businesses. I mean, Amazon's a great example of that, right? They started in books, then they went to media, and then continued on and on and on, and eventually they leveraged their scale into cloud computing and whatever.

Then that into databases and all sorts of stuff. Yep.

Yeah, exactly.

Ben, Andrew mentioned that he'd never heard your voice at real speed, uh, because he listens to podcasts, uh, accelerated. I think the way to think about it is take Darwinism and turn up the knob a few clicks.