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Created value is not captured value
Two independent numbers
Call the value a company creates X dollars and the share it keeps Y percent. X can be very big while Y is very small, and X can be middling while Y is large enough to build a very big business. Neither number tells you the other.
Airlines versus Google
US airlines took in 195 billion dollars in domestic revenue in 2012, while Google took in just over 50 billion. Asked to give up either all air travel or search engines, most people would sense that air travel matters more, and globally the airline business is far larger than Google's.
Thin airline profits
Airline profits are thin, though. The industry was marginally profitable in 2012, and its cumulative profits across a hundred years in the US are roughly zero: companies make money, go bankrupt, get recapitalized, and start the cycle again. The combined market value of the US airlines comes to something like a quarter of Google's.
Why do airlines earn so little on huge revenue?
Travelers compare fares side by side online and mostly choose the cheapest seat, so carriers have little room to raise prices. Fuel and labor are two of an airline's largest costs, and both are hard to cut. Aircraft are expensive to buy, and a plane keeps flying under new owners after its first operator fails, so capacity rarely leaves the market. The International Air Transport Association has reported industry net margins in the low single digits of revenue in most years it has published figures.
How does Google keep so much of what it creates?
Advertisers bid in an auction for each search, and Google collects the winning bid whenever someone clicks. Serving one more search costs very little compared with the revenue it can bring in. More users attract more advertisers, whose spending funds a better product that draws more users. Google introduced its AdWords advertising program in October 2000.
How do bankrupt airlines keep flying?
Chapter 11 of the US bankruptcy code lets a company keep operating while its debts are restructured. Planes stay in the air and routes stay on the schedule, and creditors absorb much of the loss. United Airlines went through Chapter 11 from 2002 to 2006, Delta and Northwest filed in 2005, and American Airlines filed in 2011 and emerged in 2013.
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