Disclosure: It’s just a catchy title; Seinfeld didn’t really make me cry. In fact the series made me sit up and take notice of how digital and non-linearity are gripping the world.

Seinfeld is a hit American sitcom that aired on TV between 1989 and 1999. It’s a show about 4 friends living in New York. I have watched all episodes only a million times and yet it never bores me. It has a certain special quality about it that I can’t put a finger on.

That is why even after 22-23 years since the last episode was aired, it continues to have a following. So much so that it was aired on TV several times. Then in 2015, Amazon Prime bought a 5 year streaming rights for $90 M! Then in 2019, Netflix bought the streaming rights for 5 years for $500 M!

$500 M! For a show that last produced in 1999! Imagine this, all the effort in producing the show- the scripting, the acting, the direction etc., etc. got over in 1999. And yet 22 years later it continues to pull in revenues!

This is what got me thinking about this whole relationship between input and output. There are some models where the output is closely linked with input. More input may or may not lead to more output. And sadly, no input leads to no output. For example- a barber spends time and cuts his clients’ hair. If instead of 8 hours a day he were to work for 10, he is likely to see about a 25% increase in his revenues. So more input leads to more output. But he can’t scale it, because he has only 24 hours a day. And so his model has an upper limit because time is a vital ingredient in converting input to output.

In my previous blog, I did bring up the case of my wife who claims to work twice as much as needed and yet her output isn’t twice as much as before. This is the case for every employee, because his/her upside is capped too.

On the other hand, I have written at length about businesses where the output isn’t linked to their input. Take the example of the Suez Canal. This is a one of its kind asset. And sea transportation is the cheapest form of transport. And container ships from Asia to Europe and N. America have to go via the Suez Canal. The alternative is far more time and money consuming. And so all passing ships gladly pay a small toll to use the Suez Canal. On the other hand, there is no input that is required from Suez Canal to service those passing ships and yet it continues to pull in revenues year after year. (Same for the Sphinx and the Pyramids in Egypt.)

Think also of people who receive royalties year after year on their artwork several decades after it was published. These people too enjoy the benefits that come because the output (or income) is not inked to the the input (or effort)!

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The difference between the above 2 models comes alive ironically in Seinfeld itself.

There are 4 main characters in Seinfeld – Jerry Seinfeld the lead man who plays himself, Elaine Benes, George Costanza and Cosmo Kramer. Seinfeld, the person, I am guessing owns a share of the rights of Seinfeld the TV show. But the other 3 are all employees. Each of them received big paychecks when the show was in production. But once the production stopped, their paychecks also stopped. Their upside was big but limited and it came to an end in 1999. Yet, Seinfeld the person and Seinfeld the show continue to pull in income year after year without expending any meaningful effort.

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The second aspect to this blog is how digital is shaping economic outcomes. By digital I mean a collection of devices like computers, mobiles connected to the internet and powered by algorithms.

A real world asset costs time and money to create. Duplicating the asset would require duplication of effort. And it can be let out only once at a given point of time. For example, a house takes time and money to build. And it can be let out to only one tenant at once. A billboard next to the highway can show only one ad at any given point of time. A JCB can be leased out to only one lessor.

But in the digital world, the cost of replication in terms of time and money is almost 0. But as an owner I can collect income on it almost infinite times. For example, the effort to write this blog is say 1 hour. But a million or even a billion can read it at the same time, without me having to incur any extra cost. Yet, the host – WordPress can show different ads to different people and collect revenue on it. And keeping doing so forever.

So – the digitally savvy have an unfair advantage.

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I have written a few blogs on the connected topics of Mediocristan-Extremistan, non-linearity and output-input and digital. This is the last in this series. Let me just summarize what I think are the key takeaways for myself as an investor:

• Seek businesses that are like Seinfeld that can pull in revenues far in excess of the effort expended
• Seek businesses that preferably don’t exchange time for money and instead have non-linearity built into them
• Seek one of a kind businesses like the Suez Canal. If they are in the digital world, even better!
• Prefer digital assets over real world assets.

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Thank you for reading!

Cheers!