Credit where it’s definitely due: this post was inspired by a Twitter conversation with Box CEO Aaron Levie.
Don’t look now, but something remarkable is happening.
Instagram had twelve employees when it was purchased for $700 million; all of its actual computing power was outsourced to Amazon Web Services. Mighty ARM has only 2300 employees, but there are more than 35 billion ARM-based chips out there. They do no manufacturing; instead they license their designs to companies like Apple, who in turn contract with companies like TSMC for the actual fabrication. Nest Labs and Ubiquiti are both 200-employee hardware companies worth circa $1 billion…who subcontract their actual manufacturing out to China.
Warren Buffett has long advocated investing in businesses with “moats” around their business model. Often that moat is an economy of scale; the notion that a hundred widgets cost a dollar each but a…
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