The evolution of Capitalism: It's the Ideas that matter more than the Capital

Technology is not only reducing the barriers of entry but also reducing the transactional costs allowing firms to reach smaller buyers (and it's about far more than the economies of scale, as argued by Jon Evans in TechCrunch):

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 million widgets only a dime apiece.

Obviously that doesn’t apply to software, or music, or other virtual goods. What’s less obvious is that as time goes by, and technology and interconnectivity advance, it applies less and less to the physical world as well. Industrial capacities that not long ago were available only to gargantuan corporations are today open to anyone and everyone. Amazon, Microsoft, Google, and the OpenStack providers compete to rent economies of scale for web services. Foxconn et al essentially do the same for electronics. So what happens when this trend expands into other sectors? What happens when there are Foxconns for furniture, or cars, or houses, or retail stores? And a Dronenet for transporting physical goods?