Capitalism as Creator and Destroyer

Facebook was in the news because Goldman Sachs’ investment in it valued the company at $50 billion. That’s $50 billion for a company that makes $2 billion a year in revenues (not profit). So why pay so much for it? One of my friends said people are willing to pay so much because they expect (hope?) Facebook will figure out a way to generate money via advertising. Or they’ll find a completely new way of making money directly or indirectly from their 500 million members. After all, who can predict the ways of the “brave new world”, my friend asked. And that’s capitalism: creating new ways to make money.

Capitalism, of course, can also destroy existing ways of making money. Like when Google started offering free navigation services on its Android OS for cell phones in late 2009, Nokia had to follow suit and stop charging for its Ovi Maps (Who’d pay for Nokia’s navigation service if they could get it free from Google?). And with both Google and Nokia making navigation directions free, the entire driving directions industry was wiped out! In that context, another friend commented that while he is a fan of capitalism, he’s glad India’s not “that capitalistic”. Thank God, he said, that kind of churn via capitalism only happens in the US, not India.

On a humourous note, I like this picture since it captures both the competitive spirit as well as the illegal side of capitalism. The yin and the yang of capitalism? Just kidding.


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