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[..]I think tech companies may have something to do with it too. These companies basically create massive book assets (and income streams) without requiring much capital, or being capital constrained.

John Van Reenen talks about this in this paper [1]. He has been looking into how and why the giant companies have been concentrating all power in their market : Amazon, Google,...

His hypothesis is that to become a giant company you used to need capital to buy the best factory and the best machines but that nowadays to become big you need to have the best version of intangible capital : proprietary software, users' data,...

Markets become winner takes all and this creates the rise of "superstar companies". To become a giant company you can't just dump money at the problem anymore to build, say, a new factory. The only way to dominate search is to have Google's tech along with users and the data they generate. To become a retail giant you invest heavily in logistics and inventory control management.

This has several consequences :

- You don't need to borrow mass amount of money to become big.

- Changing the interest rate doesn't have as big as an impact as before (if you don't need large amount of capital to grow big, making money more expensive won't prevent companies to grow big).

- wages inequality rise (the few workers that produce the intangible capital in the have high wage while wage become stagnant for the rest)

[1] Increasing Differences between firms: Market Power and the Macro-Economy http://mitsloan.mit.edu/shared/ods/documents/?DocumentID=504...

Cheers. I'll check it out.

So, Price’s Law? https://youtu.be/UmUdcWk6Vfw

Buying millions of machines, running in 100 data-centre, has the same capital of building a factory. I doubt a startup can compete with a giant without a lot of money for hardware and people to code

Your focus is too narrow, you have to look at other industries too.

For example in beverages and fashion the capital needed for production is very limited, it's all about marketing and getting marketshare. Software is a mix where building is not as trivial, but it's for those big companies mostly about positioning and sales. Those industries are much more sensitive about ROI, it's not easy to find ways to spend you money in those areas.

Google/Apple/Facebook are just very profitable companies with in internal investment arm because they don't pay dividends or make huge buybacks, what a traditional company like CocaCola would do with those huge profits.

There are investment companies with hundreds of billions under management, so that's also nothing out of the ordinary. So the money is still invested, those companies don't have their billions on a bank account. Only this way those companies still have access and control over it, for acquisitions for example. Is that a good thing? Probably better than in some random fund owned by some individuals who are much more risk averse.

Tesla is another story, but from an outside perspective it's just very risky. They could've easily went bust if the Model 3 production went south, that's why it's tough for him to raise capital. Not many entities can gamble like that with billions, if it was a sure deal there would easily be enough capital available for Tesla. Look at the balance sheets of mayor car companies, for example Daimler has a quarter of a trillion in assets.

Good points.

I don't think the difference between Tesla and most tech companies is just risk though. Tesla is definitely taking way more risk than "normal" but I think they are still getting a great price for equity. They're still trading at a nice multiple of revenue, especially considering debt.

I think there is a real difference in how the money works.

Tesla's equity was not, for the most part, poofed into existence by the market's expectations of future success. It was invested into the company. People wrote checks. Tesla built factories, made cars. The value of equity fluctuated and people made some market gains, but a substantial portion of the dollar value in Tesla right now was put there by investors.

Google or Facebook never needed money. They needed a market for their shares, but they didn't need to raise capital.

I think you're probably right about the narrow focus. More of the economy is more like FB and less like Tesla today.

If Tesla has more/less capital available, they can put it to work in the way whiteboard economics works. Increase capacity, produce more units, R&D... Facebook can't. Financial markets can affect its share price, but they really don't directly affect what FB can/will do.

My very long winded point is that the prevalence of fb-like companies makes money markets less reactive, and explain why prices are so high for assets. Big segments of the market can happily pocket increases in equity value, but they are supplier of capital, not consumers of capital like they're supposed to be.

Apple pays dividends, and makes huge buy backs.

" beverages and fashion the capital needed for production is very limited"

Disagree here, working capital is the hardest thing by far for any company that 'makes stuff'. Inventory is very expensive. Shipping. Faulty units. Returns.

As for dividends ...

Dividends simply don't matter. Either you own the cash via stock ownership, or they return it to you. It's more a matter of how that capital can be put to work - who is better - Google, or you? Depends on the company there.

Mistype: I meant "when PG was writing about founders starting to keep majority ownership."