The earnings of U.S. publicly traded corporations has become so concentrated — a high share of income is earned by very, very few firms. I want to offer you a way to think about the value of firms in total that explains how enterprise value becomes really impressive.

Scarcity

The 10 most valuable publicly traded in our economy, first and foremost have scarcity working in their favor. These companies sell products that outshine the competition. In these cases, the second-best product in their market is judged as greatly inferior. Think about Apple and the experience Apple customers have. They would say, “If I had to leave the Apple family, the amount of glitchiness in my life would go up. I would make a sacrifice.” Same with Amazon. Many people have this go-to reflex because it is absurd how hard Amazon will work to make it right if your order gets screwed up.

                It's a big part of why they're very unprofitable, but why wouldn't you be in the habit of going to Amazon? Name the next-best e-commerce site where you find as much. Hard to think of who that is? Microsoft still has a lock on us as a byproduct of Windows. Alphabet is a new company being created by the founders of Google. And of course Google has become synonymous with internet searches. We don't even think about what other search engine we would use.

                Scarcity creates an attractive monopoly, where there's a big difference between this product and the next-best product. A firm with scarcity has prospects for good enterprise value. The alternative to your business means a sacrifice for your customer — that's what we're looking for. Maybe your potential customer base is very big. You just don't have a direct competitor. The threat to leave you is hollow because it would entail self-punishment.

                I had a friend who was upset about the things Lululemon founder Chip Wilson said. His public comments were so offensive she wanted to boycott the company, but she said, "I can't without punishing myself." That's what you're looking for. Where your customer, even in their worst moment in their relationship with you, just can't choose to punish themselves.

                When you have a product monopoly, you need something that protects what's great about you. Lululemon has better yoga pants. It's not your imagination; it's science. And the cost of replicating these attributes is so high. Lululemon makes some very expensive investments that ruin the market for others.

Scalability

The second condition is what we call scalability, which is created by using technology, rather than people, to grow a company.

In many companies today, technology is not a cost center — it is the company. Bots can cover certain roles, such as regulatory filings and customer support. In insurance companies, changing coverage or adding specific items to policies can be executed by the consumer or by bots.

                And as soon as you think of technology as the core of the company, rather than as a cost center that's building a website for your product, it is truly transformative. What we're seeing already is that we now have about 1,200 policies or customers for every one employee. So 70,000 customers, policy holders, are supported by fewer than 60 employees.

                We haven't done an exhaustive survey; we just sampled a few of the largest insurance companies. The trajectory is pretty compelling.

Companies out there are thinking about creating a new production process, and it's painful, time consuming and expensive. But Lemonade Insurance Co. has made these big investments and has lowered costs.

                If a competitor has this ability to produce so much high-scale, lower-unit cost, we define that as scalability. Certainly the top 100 companies, publicly traded in the U.S. economy, enjoy scalability.

Scopeability

Hershey has a really good distribution system, which is why they have such high share. Hershey's distribution system enables them to make an enormous number of acquisitions, and these acquisitions enable them to be better service providers to their retail partners. Scopeability, economies of scope, means you can use your assets and capabilities and be in more businesses, and then do an even better job of utilizing all your fixed costs.

These are the three things that explain enterprise value in total, and these are the good reasons why the economy has concentrated.