When starting, businesses, more often than not, focus on how large the pie is, thinking they can capture the totality of it. Consequently, they aim for as large a pie as possible. What is missed here is that it doesn’t matter the size of it, but rather how much value can you capture from it. Furthermore, another ignored fact is that both variables are independent from one another.
“A business creates X dollars of value and captures Y% of X. The critical thing people always miss is that X and Y are independent variables”
If we think about it, intuition would say airlines are much more value creative than Google Search. They are probably a much more necessary resource than a simple search engine. As of 2012, all US airlines combined had revenue of 195bn while Google only 50bn. That means the size of the airlines pie is much larger, as intuition suggested. However, because Google can extract a much bigger piece of this small pie, the market values the company at almost 4x that of airlines.