1/ I helped my late friend Dan Kohn write this essay in 2001:
"Items are 'nonrival" when we can all make use of them without anyone having to give them up. If I copy your CD, you’re none the worse for it (nonrival), but if I steal your car, you will probably be upset (rival)."
2/ "Goods are "nonexcludable" when it becomes impractical to stop everyone from making use of the item, once one person can...
....the cost of providing the item to one consumer [can be for some goods] the same as providing it to any number of consumers."tidbits.com/2001/10/22/ste…
3/ Mauboussin: "intangible assets have characteristics that are different from physical capital or labor. ...intangible-based companies can defy the conventional economic concept of diminishing marginal returns and in fact realize increasing returns." morganstanley.com/im/publication…
4/ "Intangible assets often have high upfront costs but, as non-rival goods, very low incremental costs." morganstanley.com/im/publication…
It's not possible to value a tech business without understanding the vastly greater scalability and competitive advantage period of non-rival goods.
5/ Longer competitive advantage periods of businesses like Shopify, Google or Valve means it's terminal value is vastly greater than Safeway, Kraft Heinz or a steel manufacturer. Not taking higher terminal value into account when it can be >75% of value is financial insanity.
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1/ Helping Bill Gates write his first two books was great fun for me. The process was an opportunity to ask him questions (eg, his experiences with DEC). He's usually reluctant to talk about the past but the book writing process was an exception. Here's a picture of a DEC PDP-10:
2/ “Under Ken Olsen, Digital pioneered the minicomputer and later scalable hardware architecture (VAX). When PCs became popular, Ken followed his engineering inclinations and built a better one — only better, in this case meant incompatible with the Intel standard." Bill Gates
3/ “Olsen accomplished an amazing amount. He persevered through ups and downs, driving things forward and had a commitment. DEC faced the challenges of a changing industry, but when you look back on what he did, it was very impressive. I actually grew up on a DEC computer.” BG
#10 came in a hot thermally given that flamethrower effect, but the touchdown of the metal was ~ soft. Iterative product development at this scale is fascinating to watch. That it landed at all is impressive engineering.
What people focus on is the rocket (i.e., a tube filled with highly explosive materials) but by far the most important determinant of Starlink's success is the cost and performance of the ground terminals customers use. Vastly more cash will be spent on the ground than in space.
3/ More important than the #10 Starship soft landing would be the creation of high volume factory for the Starlink user terminals. A job posting suggests a ground terminal factory will be built in Austin. Solving a chicken and egg problem is a challenge. cnbc.com/2021/03/02/spa…
This podcast with John Malone is self-recommending. He describes Bill Gates arriving for a meeting with a pizza and a beer 6-pack telling him to "Forget hardware since there's nothing in hardware that can't be emulated in software." Malone: "Damn, I should have listened to him."
If you don't at least bookmark this John Malone interview you are a damn fool. If you pay attention you can hear someone with a circle of competence mindset. For example, generating value as an operator who understands cash flow and leverage isn't the same skill as stock picking.
John Malone: "Every business comes down to the quality of the management. It is not important that I know the business, but it is important that they know the business. I can help them with finance, but they need to have the vision, the drive and the team building skills."
"The best results occur at companies that require minimal assets to conduct high-margin businesses – and offer goods or services that will expand their sales volume with only minor needs for additional capital."
Who are these businesses?
2/ Michael Mauboussin describes the types of businesses which rely on intangible assets in this chart from his recent post: morganstanley.com/im/publication…
3/ "Berkshire’s depreciated cost of [its] domestic “fixed assets” is $154 billion....Berkshire owns American-based property, plant and equipment – the sort of assets that make up the “business infrastructure” of our country – exceeding the amount owned by any other U.S. company."
1/ "Most reporters have steadily been building escape hatches from their employers. They are called Twitter accounts, and their arrival gave journalists an asset that would have been unthinkable in a world before the internet: truly portable audiences." platformer.news/p/twitter-pull…
2/ That the creators have stronger bargaining power now that they have their own transportable brands is not a development that makes media companies happy. The media companies now have an incentive to treat creators well to keep them from moving to a new platform. This is good.
3/ Media companies nervously claim Substack-enabled writers "are not independent."
How exactly are large media companies independent any more given their primary activity is feeding the confirmation bias of their subscribers and viewers?