Musk’s Moonshot Merger

Here’s how it used to work, say a decade ago. Google was a website. (Still is.) You could go to the website and type in a question and Google would give you a good answer. This was useful, so Google had a lot of users. Advertisers would pay a lot to reach them, so the website made a lot of money. This had, for Google, huge economies of scale: It answered the questions and serve the ads algorithmically, so as more people came to the website and asked more questions, its revenue increased rapidly but its costs — just some servers in data centers — did not.

So Google had all of this extra money, and it spent some of that money on what were colloquially called “moonshots,” risky ambitious long-term bets with uncertain payoffs, like building self-driving cars and curing death. (Some of this stuff happened in a division that Google called X.) Investor enthusiasm for moonshots waxed and waned over time, but at a high level the strategy made sense. Google had some very smart people who wanted to make the world better. They built a software product that generated a lot of money with low marginal costs, and they used the extra money from that software to try to solve harder, more capital-intensive problems in the physical world.