David Rosenthal: belief

Transcript context

…You can fully understand their motivation. You're the enemy. I think what you're saying is take this example of a market where there is diminishing returns to density. If the diminishing return curve is steep, then it's very unlikely that any individual company can develop power. If it's gradual or linear then yes, you still can't develop power even within a market with diminishing returns to scale. There's this concept that we call heterogeneity of preferences that matters. What it means is that returns to scale are always diminishing, but how quickly it diminishes depends on the space you operate in. In the case of Uber and Lyft, Ben, as you said, the drive is undifferentiated. All I care about is how far away my driver or my rider is. What they're doing is literally putting dots on the 2D geographical map and the minute you get to enough density, you're good enough. We can think about maybe something with high levels of heterogeneity. Think about YouTube. The content you watch has so many dimensions that you care about—the language, the theme, the music, and the production quality. That is a space where in order to get to a scale where I'm good enough, that this additional piece of content is not going to appeal to my users anymore, that's a much higher level of requirement, of critical mass, or of scale of content. This is something we think operators should also think through, what is the level of heterogeneity that your transactions have and that determines how important scale is to you.…

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