Tech Companies and Competition

(Disclosure: my current employer is a subsidiary of Microsoft. I’m not a journalist or anything, and I don’t think that really influenced my writing, but it would have felt dishonest not to mention it.)

Daring Fireball, weighing in on a recent IBM executive shakeup:

I don’t offer this observation as an argument against any and all regulation and antitrust investigations of big tech companies. I’m simply arguing that regulation and antitrust lawsuits should be wielded with surgical precision, not broad strokes. Competition and progress work.

If you listen to his podcast Dithering you quickly pick up on the fact that John generally is in favor of letting the market do its thing, and his point is well taken that IBM spent decades being dominant only to have a much more diminished role in tech today. But the dominance of today’s tech companies feels substantially different from the dominance IBM had.

IBM Was Big When Tech Was Small

IBM was dominant in the world of tech when computers were something that only businesses owned and used. IBM did make some consumer tech in the 80s, 90s and early 00s, but their ability to be big was mostly due to the fact that they were big fish in a relatively small pond. That’s not true for the biggest tech companies today.

Entrenchment is Deeper

Social networks had relatively short lifespans before Facebook came along. They’d often fizzle out after a couple of years. Facebook has managed to reach an escape velocity that’s kept them from having that same issue. They were wildly popular in the aughts, and they’re even bigger today. They measure their users in billions, and they’ve been known to buy up companies achieving dominance in areas and markets they didn’t (see: Instagram and WhatsApp).

In a similar vein, there was a cottage industry of search engines before Google came along. Whereas Facebook got more powerful as a social network because social networks get more useful the more people are on them, Google largely earned their dominance by making a great search engine. But in doing this, they also became deeply entrenched in their position at the top and it’s structurally really difficult to unseat them.

Big Tech is Big With a Capital B

At press time, there are five companies with market caps above $1 trillion, and four of them are tech companies (Apple, Microsoft, Amazon and Alphabet; Saudi Aramco is squeezed in there at #3). Facebook is worth nearly a trillion.

Tech is big business now, and not only are tech companies now our biggest companies, they wield a massive amount of control over our daily lives in a way that IBM never came close to achieving.

If you participate in the modern world, you almost certainly are being served directly or indirectly by servers in a cloud run by one of these big tech companies. If you use a computing device, you almost certainly are using an OS made by one of those trillion dollar companies.

IBM’s unseating

Gruber’s right that IBM lost dominance, but let’s remember how that happened.

IBM’s downfall was in not anticipating the PC revolution. They falsely assumed that mainframes were where the big money was at, and when they made a PC, instead of buying exclusive rights to DOS from Microsoft, they licensed it. Dozens of other companies started making IBM-compatible PCs, and PCs sold like gangbusters, easily eclipsing IBM’s business selling mainframes to big companies.

But that only was possible in an age where there weren’t many computers. Today, most every person, home, and business has a computer, and often several. There’s not really any new category of device that can come along and eclipse the computers and mobile phones that Apple, Microsoft and Google power, or the servers that Amazon, Microsoft and Google power.

A side note: IBM didn’t really suffer a downfall so much as it ceded growth to other companies. Even in their diminished role, IBM continued growing throughout the 90s and aughts, with their market cap peaking in 2017 at just under $175 billion.

IBM missed out on a fundamental growth wave, but what fundamental growth wave is there for today’s tech companies to miss? Billions of people own a smartphone now, and Apple and Google have a technical head start of well over a decade of building mobile OSes. Even if you can imagine a newcomer coming along and taking over that market, there’s no longer much room for that market to grow a lot higher.

Assuming no major new policies that might shake things up, the big tech companies we know today are almost assuredly going to be the big tech companies we know in a decade or two. The last 20 years of tech have seen advancements comparable to the last 50 years of the 20th century. And not only that, the biggest tech companies are now in far more businesses than IBM ever was.

Competition is a powerful thing, but once your market cap is measured in trillions and you have almost no peers, it’s a lot less meaningful.


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