1/ In 1994 I said to Bill Gates that while network effects can be beneficial, the phenomenon can easily disappear because the factors that sustain them are brittle. We were talking about AT&T losing network effects.

Bill responded to me by saying "That's why I worry so much."
2/ At the time (1994) our friend Craig was selling McCaw Cellular to AT&T, which was buying mobile assets since it believed it could save the long distance business. AT&T (the long distance co. now gone) not understanding network effects was ironic given who first described them.
3/ Each question is different

a. Do you have a moat? (The test is based on math)
b. What created the moat (eg, supply or demand side scale economies)?
c. What value does the moat protect? (Google a lot vs Twitter not so much)
D. How long will the moat last (CAP)?
4/ Google has at least two beneficial demand-side economies of scale — one for search and one for advertising targeting — that are mutually reinforcing. The Google platform is for something sellers value. The Twitter platform is not as valuable to sellers. a16z.com/2016/03/07/net…
5/ What else reduces the value of barriers to entry (moats)?

Porter: "Competition for profits goes beyond established industry rivals to include other competitive forces [including] suppliers."

Wholesale transfer pricing can be a problem in any profit pool in any value chain.
6/ "A critical difference between single and multi-sided market is that the sides interact directly. A single-sided “market maker” buys x, puts x in inventory, and eventually sells x. Multi-sided markets look like this: 25iq.com/2016/10/22/a-d…
7/ A market that has two or more sides is vastly more financially attractive to create since it has the potential to scale and generate value in a non-linear manner. Network effect-based value can increase exponentially at the same time as costs grow linearly, if at all.

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More from @trengriffin

26 Dec 21
1/ Ray Dalio to Tyler Cowen who cites random walk macro literature:

"The market is like a poker game. I’ve played for over 50 years. It’s a zero-sum game relative to what’s priced in, and the smart people take money away from those who are less smart.” conversationswithtyler.com/episodes/ray-d…
2/ Dalio: “That’s the way it works. I wouldn’t be in the business — I wouldn’t be on your podcast,  unless that was true. There are many people who write finance papers, and there are people who make money in the markets. I can’t speak for those who are writing finance papers.”
3/ Ray Dalio argues that three big phenomena happening now are particularly important:
a. Zero interest rates with actions to finance debt;
b. The internal conflict between left and right, rich and poor a political polarization; and,
c. The rise of China.
Read 26 tweets
20 Dec 21
1/ "There's only one thing we know for sure and that’s the stock price. So then reverse engineer what has to happen for that thing to make sense and then try to judge whether that sensible. ...lay bare the underlying assumptions and then debate them." ritholtz.com/2021/12/transc…
2/ "If you invest in your business and you’re earning exactly your cost of capital, growth doesn’t make any — doesn’t add any value whatsoever. And so earnings growth can be good, it can be bad, it can be indifferent. ...Free cash flow is the number we try to keep our eye on."
3/ Tangible assets are capitalized on the balance sheet showing up in the income statement as depreciation. "By contrast, intangible investments are fully expensed [which means] earnings are a lot lower than they would otherwise be."

This accounting mistake is your opportunity.
Read 4 tweets
19 Dec 21
1/ What's the best way to determine which business is creating the most value below? Growth is beneficial if cash inputs in early years of a business don't exceed the discounted value of the cash those assets will generate in later years. The more that happens, the better it is.
2/ The numbers in the previous chart are from @jaminball. They provide clues to the amount and timing of cash flows into and from the business, but they aren't the only clues available. My approach is to evaluate the growth on a bottoms up per customer basis via unit economics.
3/ The value of a business is the sum total of the value of present and future customers. The more micro my focus (eg, what is the value of a customer?) the less I am guessing about an uncertain future. What a real world customer is worth right now is the starting baseline value.
Read 11 tweets
19 Dec 21
1/ Launch insurance "covers complete launch failures as well as the failure of a launch vehicle to place a satellite in the proper orbit."

Circa 2002, launch insurance rates were as depicted in this chart. Not a small cost number as A %. faa.gov/about/office_o…
2/ SpaceX just launched the Turksat 5B mission toward geostationary transfer orbit to aboard a Falcon 9 rocket. Booster has landed already. Stage2 separation happens soon.

As satellite launch becomes more reliable and routine, what happens to launch insurance prices?
3/ This report estimates insurance covers the launch plus one year of satellite operations on Falcon Heavy was priced at a rate in the “mid-teens," likely higher than what Astranis would have got with a Falcon 9. spacenews.com/astranis-unvei…
Read 5 tweets
14 Dec 21
1/ "A profit pool shows the distribution of an industry’s value creation at a point in time. The horizontal axis measures size, typically invested capital or sales as a percentage of the industry, and the vertical axis measures economic profitability." research-doc.credit-suisse.com/docView?langua…
2/ "The value chain is “the sequence of activities your company performs to design, produce, sell, deliver, and support its products."
3/ "The objective: to assess each activity’s specific contribution to the company’s ability to capture and sustain competitive advantage." Mauboussin
Read 4 tweets
11 Dec 21
I skied at Crystal Mountain yesterday.
Silver Basin is a backcountry area.

"Everyone in the group was wearing an avalanche beacon, which helped ski patrol find and rescue them."

A witness was able to call for help.

100 mph winds at the summit today.

kiro7.com/news/local/1-d… Image
Silver King,where the deadly avalanche took place, is here. I skied only in bounds yesterday. But I did ski the edges of what was open to get a little fresh Pow. Only two chairs were even open.

To skin up and ski down from 6300 feet (Silver Basin) you must go to the Guest Services ticket booth to sign ski area waivers and obtain Crystal's "Backcounty Card." You leave the resort boundary a few feet from the top of Quicksilver where this photo of me was taken yesterday. Image
Read 5 tweets

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