Decomposing. Evolving: Monoliths become Flows
What are companies, and why do they exist?
(Nobel Prize winning economist) Ronald Coase’s idea was that a company forms at the point where it’s cheaper than the overhead/tax/friction of contracting individual entities to do the work. Coase identified transaction costs as instrumental in determining where the boundaries of a company might be: what to do yourself vs what to outsource, who to employ directly vs who to contract. The lower transaction costs brought by modern logistics and the internet have already reshaped the structure and borders of modern corporations.
The Ford Motor Company of 1920 was easily understood as a single, monolithic business that employed nearly everyone involved in the making of a car. Today’s Ford is best described as a networked flow of information and energy (what is capital but potential energy?) that spans many companies in many geographies. Modern logistics and communication enabled this profound structural change, and today no car maker could make everything, even if they wanted to.
Apple beat Intel at making microprocessors. While Intel prides itself on vertical integration (doing everything), Apple’s M1 is possible because Apple is free to focus their innovation on the high-value parts of chip design (features that enable user-facing value), leaving commodity IP to ARM, and sophisticated manufacturing technology to partners like TSMC. Apple is a networked flow of information and capital, where Intel is a lumbering monolith.
The fundamental innovation of the “Gig Economy” was using the smartphone (always-with-you-internet-connected-GPS) to create an ultra-low cost direct relationship with customers and workers. The friction for Uber drivers was low: launch the app when you’re available to drive. Same for consumers. Reducing the friction required to contract a driver enabled Uber to shift the boundaries of the corporation, reducing their cost, substantially.
It is critical to understand these systems as flows of information and energy, because crypto will allow the decoupling of many of the pieces of value in these flows. The magnitude of this unbundling will be unprecedented.
Renewal and Evolution
Nature accepts death and renewal; not an enemy but a gift: the winds of change, a redirection of energy and information. Monoliths seek to defy Nature, and for a time we might marvel at the beauty of our own creations. In the end, monoliths hide metastasizing cancers and collapse under their own weight. Thankfully they nourish what follows.