The rise of the technology industry over the last few decades has been powered by its very strong
economies of scale. Once you have invested in developing and deploying a technology, the benefit of adding each additional customer greatly exceeds the additional cost of doing so. This led to the concept of "
blitzscaling", that it makes sense to delay actually making a profit and devote these benefits to
adding more customers. That way you follow the example of Amazon and Uber on the path to a monopoly laid out by Brian Arthur's
Increasing Returns and Path Dependence in the Economy. Eventually you can extract monopoly rents and make excess profits, but in the meantime blitzscale believers will pump your stock price.
This is what the VCs behind OpenAI and Anthropic are doing, and what Google, Microsoft and Oracle are trying to emulate. Is it going to work? Below the fold I report on some back-of-the-envelope calculations, which I did without using
A1.
