Two articles for you this week.
The first is a review of a book I’ve been reading — Modern Monopolies by Alex Moazed — which addresses one of the key stories for any professional investor: the rise of platform companies.
Platform companies may wipe out the classic 20th Century Company.
“Although the idea may be simple, the implications for conventional businesses are colossal. Indeed, the authors — who work at Applico, a New York-based platform innovation company started by Alex Moazed — question whether the classic 20th-century corporation, whose competitive advantage and chief functions lay in lowering transaction costs and arbitraging information deficiencies, can survive. Platforms, they claim, “deliver faster growth, better return on capital, and larger profit margins”.
My take: this is a thesis that every fund manager should be debating. It’s very much of a piece with my rather repetitive emphasis on the operation of the power law of ‘positive sum’ networks and the rise and rise of the platform giants.
It’s clear that these companies have the ability to leverage their huge user bases and gated communities to jump into ‘adjacent’ markets — from healthcare to banking — at virtually zero marginal cost.
However, I can also see the build-up of medium-term blowbacks, especially in the cases of Google, Facebook and Amazon, as the legislators grows increasingly uncomfortable with the power of these companies to know far more about us than we know about ourselves and to manipulate our behaviour, our politics etc.
The second article is from the Disney school of tech stories.
I include it here because I think that investors are too often distracted by the hype around these kind of projects…
In fact, the article reminds me of the initial plans for the Epcot centre in Florida, which Walt Disney pitched as a complete and functioning city where residents would speed through neighbourhoods to work on an elevated monorail — a centrally planned city with a revolving population of renters in self driving cars, all working on moonshot projects financed by the city fathers (who enjoy very favourable tax arrangements with the state).
A parable for our times there.
Last this week, I will be sending you the first in a series of articles about investing in technology.
This series will address some very simple questions that many professional investors will be asking themselves, namely…
Why does this stuff really matter?
How do I find profitable opportunities?
What risks, if any, do I need to prepare for?
The plan, essentially, is to cut through the Disney journalism and grand narratives that surround technology to focus on a series of very promising mid-cap investments that are slipping under the radar.
Until then, feel free to alert your colleagues by forwarding on this email or retweeting.
All feedback is most welcome. You can connect with me here and on twitter