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The fortunes of Silicon Valley stem from inefficiency

illustration of cars driving on a dollar sign
Illustration: Sarah Grillo/Axios

Clive Thompson is out with a new book, "Coders," excerpted in Wired. In it, he talks about engineers' aesthetic of efficiency — how "coders’ eyes blaze when they talk about making something run faster," and how they dream of doing such things at previously unimaginable scale.

The other side: Silicon Valley coders might love to make processes leanly efficient, but the irony is that Silicon Valley's billions come from inefficiencies.

  • The efficient way to allow individuals and brands to market themselves on the internet is to create a site where they can do so for free — Craigslist, perhaps. Facebook built such a site — but then started ensuring that brands' posts would not be seen unless Facebook itself got paid.
  • Apple could efficiently funnel its news-service revenue to the publishers who actually produce the content; instead, it's reportedly taking 50% of the money for itself.
  • The efficient way to match drivers with passengers, or homeowners with short-term renters, is to create a real-time marketplace that people pay a small fee to access. The inefficient way is to go to great lengths to ensure that payment is routed through the platform, allowing companies like Uber or Airbnb to take an arbitrarily large slice of the transaction.

The bottom line: Software has value, but it also has zero marginal cost. In an efficient world, the cost of software would trend toward zero. Instead, companies spend billions of dollars attempting to buy a dominant market position that then allows them to extract monopoly rents. Coders might love efficiency, but capitalism rewards rent seeking.