Saturday, February 22, 2014
Robert Reich Describes The New Economy Represented By Facebook's Purchase Of WhatsApp
Facebook's purchase of WhatsApp seems quite high to many people. It paid $19 billion for a company that employs only 50 people. Reich argues that these are the kinds of businesses that we are creating in America. It takes very few people to provide the network services that WhatsApp provides. The companies value is determined by network effects. The network of users expands exponentially as each new user makes the network more valuable to all users. This contrasts with the kinds of companies that we used to create in America that required the services of hundreds of thousands of employees. Reich is concerned about a future economy that can operate successfully with a very small number of employees. Its hard to blame the venture capitalists and entrepreneurs who are moving in this direction. A very small investment can lead to a multibillion dollar payoff.