Re:Elon Musk’s SpaceX Is Raising Money at a Valuation Approa...
by InclinedPlane on Tuesday August 19, 2014 @01:41PM
(#8198699)
It's a side effect of incremental margins on different goods/services. Selling physical things has a lot of overhead, requires lots of big, expensive capital equipment, has a modest profit margin, and has a narrow range of scalability. Selling virtual goods and services has a small overhead, huge scalability range, and potentially enormous profit margins (approaching 100%).
This leads to weirdness as you've described where the fact that a billion people deriving marginal utility from something is far more valuable than a much more "important" market where the utility is much higher but the volume is low. But this isn't a new phenomenon, there's also the situation of movie/tv/music stars related to industry, for example, which we've largely come to accept as normal but is equally bizarre. There are stars who are multi-millionaires despite having sort of sub par work, but because it appeals to such a large market and because scaling and incremental profit can be so high in media it's much easier to get rich. Johnny Knoxville has more annual revenue than lots of small companies working on very hard and interesting problems, that's just the way the economics works out.
This leads to weirdness as you've described where the fact that a billion people deriving marginal utility from something is far more valuable than a much more "important" market where the utility is much higher but the volume is low. But this isn't a new phenomenon, there's also the situation of movie/tv/music stars related to industry, for example, which we've largely come to accept as normal but is equally bizarre. There are stars who are multi-millionaires despite having sort of sub par work, but because it appeals to such a large market and because scaling and incremental profit can be so high in media it's much easier to get rich. Johnny Knoxville has more annual revenue than lots of small companies working on very hard and interesting problems, that's just the way the economics works out.