He says that Facebook and Digg could make more profits by doing the same (or more) with fewer people. His own portfolio companies and Craiglist cited as good examples of doing a lot with a little. He is talking from financial and business model perspectives.
I would add another perspecitve. I think the main reason why people want to become a big company was not just because we were focused more on revenue side of the equation, but also we want to look big. That's true at least in Korea.
I think that's because all the successful companies that we have known were large. Theoretically, you could make $1M with $2M revenue, but all the companies we knew who made $1M had $20M revenue.
I think somehow this pattern (and some other historical human memories) in the mass production era left the impression that big means strong and successful. People went as far as believing that the size is actually more important than the profit itself. People respect you more if you make $1M profits with 200 people than if you make the same with 20 people. Especially if you have a big ego, you would rather like to say "I have 100 employees and we are not profitable." than "I have 10 people and we make some profits." Bigger means more real business-like. You lead more people, and you look more like a real leader.
This should change, because it is simply irrational. If you have fewer people, you have less revenue risk. Even in terms of ego, which urged you to look big, I would be more proud if I made the same profits with fewer people. Being big could be a sign of stupidity.
Will being big turn into a sign of stupidity from a sign of success? Yes. When? Maybe not very soon. But at least we begin to have people thinking like that. I am one, proud of building artpoli.com
as a company of 2 full-timers. My goal is to remain as small as possible.