INVESTOR UPDATE JUNE 2020, page-71

Indeed, the crux of NEA's future profitability lies in the words. "highly scalable" and with "high fixed and semi-fixed costs with very low varied-by-volume costs". I chose those words carefully, because they describes what Rob Newman probably has in mind when he says, “highly scalable”.

A firm can scale revenue fairly quickly, but if costs scale in parallel, that would disallow long-term explosive growth at exceptional profitability. If business costs are people-intensive, or otherwise constrainted, the business cannot grow faster than it can handle those constraints, and it cannot dramatically gain economies of scale to make super profits if average costs do not decline. In contrast, the owner of a piece of music has no production constraint that limit the number of times folk use that music on a royalty-payment basis. NEA is to a degree like that, it costs NEA very little if more users suck more copies of the same imagery out of the sky.

Rather than using “marginal costs”, I deliberate wrote “varied-by-volume costs” to ensure readers understood what I meant (recently I had to explain the concept of “marginal costs”, because an HC reader misunderstood what the words meant). Sticking with semantics, to most people, including economists, “costs” include what an accountant would call “expenses”, and what Rob Newman means by “value”, an economist would tend to call “utility”, and “disutility” if negative.