Tuesday, April 17, 2018

In the Web Scale Era, Size Matters

Many now seem to believe that bigness is itself a problem to be solved by antitrust action (breaking firms up into smaller entities). That recently has manifested itself in antitrust actions taken even when a particular merger does not remove any competitors from a market.

Another way of stating the concern about “bigness” or “size” is to note that the need for scale itself drives the bigness trend.  In the era of “web scale” computing, scale matters.

In other words, business success now requires a certain amount of scale, since network effects exist (value is created as the size of the community or network grows). Another way of describing the importance of scale in any endeavor with network effects is to say that value is correlated with size and that, therefore, profits are correlated with size.

The point is that, in any business with network effects, scale matters. And that means “bigness” matters.

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