Authored by Omid Malekan via Medium.com,
I’ve already written about how the trend towards decentralization is going to change the nature of investing, but that was before Facebook’s stock took a historic pummeling on account of bad earnings and Apple became the first trillion dollar company on account of good. The violence of both moves set off my ex-trader’s spidey sense that this might be the kind of volatility that precedes a change.
Markets are devious, and love sucking everyone into a particular investing thesis right before proving it wrong. In the year leading up to the financial crisis, bank stocks were soaring (because home prices could never go down) and the price of oil was spiking (because supply could never go up). The housing crash and fracking boom swiftly proved otherwise.
Today, it’s almost impossible to imagine a world where the FAANGs - Facebook, Apple, Amazon, Netflix and Google - aren’t dominant. That’s why it’s a good a time to start selling, and diversifying into the decentralized platforms that will eventually replace them.
I know that this is a bold and seemingly hyperbolic statement, and I usually prefer not to give investment advice. But this particular setup is too sweet to ignore, so bear with me as I lay it out.
Companies like Facebook and Google get a lot of criticism for being too big, but that’s a political opinion, not an investment thesis. Dominance might be bad for society, but it’s good for business. The better reason to sell is because the fundamental structure of those companies is slowly becoming obsolete.
Their kind of corporate structure made sense during the industrial era, when you needed a centralized hierarchy to deliver complex durable goods like a car. It still made sense as we transitioned to the service economy, because branding and a homogeneity of experience mattered. But the model that work for GM or McDonald’s doesn’t work for a digital platform, because it leads to a misallocation of resources.
Think about the difference between a privately owned fleet of taxis and Uber. A fleet can enjoy economies of scale by raising capital, buying cars, having its own repair shop, and so on. Uber doesn’t do any of that. It just provides a convenient platform for drivers (who have their own cars and pay their own mechanics) to be hired by users.
So Uber is not a taxi company. It’s a platform for countless little taxi companies, each of which has to do all the work AND take all the risk. And yet, Uber still takes as big of a cut as a traditional fleet operator.
But hey, at least Uber still pays most of the revenues to its drivers. Companies like Facebook and Google pay virtually nothing to those doing the heavy lifting. Somehow, even though it’s their users that invest resources to create their content, the platform ends up...