I’ve recently been thinking about a close relative of the broken window fallacy, I don’t know if it has a name. It was very common in venture capital reasoning during the late 90s boom.

The fallacy is thinking: “That technology is going to reduce the costs / friction / labor / whatever so much it will revolutionize that market. We can make billions!” Right about the first, wrong about the second. The hottest example right now is maybe CraigsList, where automating classified ads is cutting the heart out of the local newspaper business model, and CraigsList has three employees and will probably never go public.

Of course CraigsList could make lots of money if they started “monetizing their eyeballs” (yuck), but in a competitive environment they’d eventually be forced to run at their marginal cost which is approximately zero. The reason this won’t happen is another set of paradoxes I won’t discuss now.

So does this fallacy have a name? I think we’ll be encountering this situation more and more often…

I’ve recently been thinking about a close relative of the broken window fallacy, I don’t know if it has a name. It was very common in venture capital reasoning during the late 90s boom.

The fallacy is thinking: “That technology is going to reduce the costs / friction / labor / whatever so much it will revolutionize that market. We can make billions!” Right about the first, wrong about the second. The hottest example right now is maybe CraigsList, where automating classified ads is cutting the heart out of the local newspaper business model, and CraigsList has three employees and will probably never go public.

Of course CraigsList could make lots of money if they started “monetizing their eyeballs” (yuck), but in a competitive environment they’d eventually be forced to run at their marginal cost which is approximately zero. The reason this won’t happen is another set of paradoxes I won’t discuss now.

So does this fallacy have a name? I think we’ll be encountering this situation more and more often…