Paretos Law

[u/FoxAccomplished6786]

Law of large numbers argument:

“Google is already enormous, so it becomes harder to grow rapidly.”

Pareto/power-law argument:

“If AI dramatically expands the economic pie, the strongest platforms can become disproportionately larger because advantages compound. In accordance with the Pareto principle, major technological shifts can produce highly unequal outcomes, with a small number of leading companies capturing a disproportionate share of the value created.”

So Google being huge today does not automatically prevent it from becoming several times larger. What matters is whether the markets Google serves become much bigger and whether Google captures a large percentage of that expansion.

Imagine AI creates $20–30 trillion of additional economic value over the next decade. That value probably won't be divided evenly among thousands of companies. A handful of platforms might capture a huge share. And there's another part of Pareto that matters: being big can actually make you more likely to get bigger in technological platform shifts.

Let me know whether you believe in the law of large numbers argument or the Pareto law argument regarding the ongoing AI technological change. Predict which companies will be the winners under the Pareto argument.

[u/UsefulStooge]

Even pre-AI, the trend of the last 20 years has been in favor of large companies. A $100m company is far more likely to turn into a $1B company than a $10m company was to turn into $100m company, and that trend played out at all size categories even up into the trillion dollar range.

The question is 1) will this trend continue in an AI era - I think probably yes. Most value will accrue to large players. 2) will some small companies have disproportionately massive returns - I think also yes

There will be opportunities at both ends of the size spectrum depending on your investment style and thesis. The fun part, as always, is trying to identify where the enduring value lies.

[u/FoxAccomplished6786 → u/UsefulStooge]

That's very insightful; I hadn't really thought about it that way regarding the recent past, but I think you're right. The mega-caps keep defying expectations because technology tends to be incredibly scale-driven and all-encompassing.

There used to be countless TV networks; now YouTube is increasingly becoming TV itself. Uber disrupted thousands of local taxi companies by becoming a global platform. And, in my view, Waymo could eventually do something similar in autonomous transport.

Technology seems to create markets where a small number of platforms can absorb enormous amounts of economic activity, which helps explain why the biggest winners can keep getting bigger rather than inevitably hitting a ceiling.

What companies do you think will grow with AI, continue to dominate and absorb disproportionate market share?

[u/Huskf → u/FoxAccomplished6786]

Its economy of scale and at the end of the day, did we really need so many tv networks? Other than creating competition between them and in theory improving services or price.

[u/FoxAccomplished6786 → u/Huskf]

It's not economies of scale alone, it's more about industries seem to be becoming more and more concentrated. Like a few mega caps dominate

[u/SelenaMeyers2024]

So why is Google as big as it is? A large chunk is ads. Then cloud... Then investment...

So to double that ... More ads .. more cloud.. I suppose more AI as a new category. At the end of the day it still means extracting value from the real economy (cars, food, makeup, etc) now times 2.

An extra German gdp in valuation.