One of the most important insights that I have had over the past several years is that I have come to appreciate that the the scalability of “things” compared to “services” often serves as an important divining rod for identifying future investments that are the most compelling. The reasons is because the production of cheap widgets (or, more accurately, widgets with a low marginal cost) can lead to ramped-up production and high returns on capital because there is not an equally corresponding increase in expenses.
For instance, if someone launches a software firm like Adobe, which makes the famous PDFs, the costs of creating a distribution channel for the future of Adobe software is fixed. It does not matter whether there are 5,000 customers or 500,000 customers using the product–the costs are generally the same (except for the negligible data costs of tracking the subscriptions). Very real wealth gets created … Read the rest of this article!