As the article points out, weak antitrust enforcement has allowed companies to become monopolies, or near-monopolies. It's not just "tech". Look at banking. The US is down to four big banks. Until 1995, US banks couldn't operate in more than one state.
Right after deregulation, there are new entrants. Twenty years later, there are a very few giant companies. See telecom, airlines, etc.
It's my biggest gripe with current society. It's everywhere, and it's not going away. Nobody is tackling it, or talking about it seriously. At some point I thought that companies would become more powerful than states, but I've changed my mind on that. Nations do retaliate hard if they feel threatened. Maybe I've just turned naive again. But when it comes to monopolies I just don't see them ever going away now. Too much globalization combined with lobbying power and corporate veils. People talk about companies and never about the people who make the decisions, and I feel like people have trouble with accepting that in the end nobody actually wants to be in a society where companies can do whatever they want and end up being a negative contributor to society.
Some of it is lack of antitrust enforcement. Something that isn't mentioned much, though, is that business IT technology reached the point that planetary-scale companies work well. Until the 1980s or so, big companies had scaling problems. Big companies developed huge internal paperwork operations, huge headquarters staffs, too much middle management, and were choking on their own operating problems. There were inherent limits on bigness, beyond those imposed by the cost of transportation. The classic example was General Motors, which had a long history of management problems from sheer scale.
That's been fixed. Amazon, Google, WalMart, Alibaba, etc. have worldwide operations without major scaling problems. Those companies can adapt and change reasonably rapidly. The knowledge of how to do this is widespread. This is new. An inherent limit on bigness has been eliminated.
I think you are mistaken. Big Tech has the same 'human' problems as classic companies- bloated middle management, fluff work, empire buiding, process, etc. They get away with it because they are growing and can increase prices right now. Sooner or later when the vast majority of companies realize they don't have to buy software at inflated prices- the house of cards will collapse. hypothetical e.g. GM will question if they should spend $1K/car sold on advertising, CRM and internal IT if their profit is $900/car.
Seems like in most of these cases it's the advertising industry that needs to collapse, not the traditional "I give you money and you give me some software" industry.
I think an important thing is also using companies as foreign tools. The nsa would hate to see Google or Facebook broken up and supplanted everywhere by local companies. Or, worse, supplanted by a equally large Chinese monopoly.
That can be simplified even further, the NSA doesn't care about Google, Facebook, or any other specific companies, just the ability to extract data from them. They would truly hate if the Third Party Doctrine were overturned.[1]
I don't know, they're not fools. I'm sure they have intelligence workers in their ear telling them about Baidu, and the power effectively owning the internet gives the US.
I think we should all hate to see the latter. Unfortunately, it's already happening with TikTok, and with the rate of innovation in China, we'll see many more.
> But when it comes to monopolies I just don't see them ever going away now. Too much globalization combined with lobbying power and corporate veils.
We’ve been here before though, in the era of Standard Oil. They can be broken up, but it won’t just happen on its own. The government needs to take action.
> We’ve been here before though, in the era of Standard Oil.
If interested, Standard Oil was drawn as an octopus in Puck magazine (1904). The Library of Congress notes: "Illustration shows a "Standard Oil" storage tank as an octopus with many tentacles wrapped around the steel, copper, and shipping industries, as well as a state house, the U.S. Capitol, and one tentacle reaching for the White House." [0]
The government is taking action. The government is in on this consolidation via investments, contracts, preferential legal & tax treatment, etc. Think about this from the government's perspective. The government would rather govern a small number of large entities instead of a large number of small entities, thus the government is incentivized to favor monopolies/oliogopolies. The government itself is a monopoly of power in many domains.
Sure, the government may intervene with a company getting too big, but the intervention is so the government can gain a foothold with that company. e.g. any telecommunications platform will need to have back doors for the law enforcement agencies or said telecommunications platform will not be allowed to operate.
> Think about this from the government's perspective. The government would rather govern a small number of large entities instead of a large number of small entities, thus the government is incentivized to favor monopolies/oliogopolies.
According to what incentives? The government’s responsibility is to the country at large.
It's very beneficial to them for just a few companies to control everything. Then they can deperson you and say "It's a private company, not the government, they have to freedom to do business with whoever they want". That's quite a bit more difficult when there are thousands of equally viable competitors.
This is the conspiracy I personally believe the most. The founding fathers knew that government always wants more power and control. Logically following from that, of course they would use any means necessary to subvert the checks put on their power.
That's hardly even a conspiracy theory. For it to be true doesn't even require any particular government officials to coordinate at all. It just requires a large portion of government officials to correct estimate that this situation in their best interests.
Yeah I feel like George Washington's parting letter[0] on avoiding large political parties because they lead to infighting, popularity-only contests, and foreign manipulation was completely ignored.
> Without looking forward to an extremity of this kind (which nevertheless ought not to be entirely out of sight) the common
> & continual mischiefs of the spirit of Party are sufficient to make it the interest and the duty of a wise People to discourage and restrain it.
> It serves always to distract the Public Councils and enfeeble the Public Administration. It agitates the Community with
> ill founded jealousies and false alarms, kindles the animosity of one part against another, foments occasionally riot & insurrection.
> It opens the door to foreign influence & corruption, which find a facilitated access to the government itself through the channels of party passions.
Globalization and Lobbying are not irreversible trends. The world is already starting to become less "global", with the Chinese belt-and-road initiative, Russian exclusionism, and the breakdown of NAFTA (among other things). Many world powers, including Russia, China, and the US (to some degree) want the world to be less open for trade and large corporations.
as for lobbying, America has been through this before. The Gilded Age saw lobbying to an even more extreme degree, with companies like US Steel and Standard Oil able to basically pay off senators. The same thing happened with slave plantations in the 1850s. After the great depression (and even before to some small extent; see the breakup of Standard Oil), laws were put into place heavily curbing lobbying, insider trading, among other things (like stock buybacks). Really, we're in another Gilded Age, and one day the balance of power between the individual, the state, and the industry will shift again.
> At some point I thought that companies would become more powerful than states, but I've changed my mind on that.
Companies don't need to compete with state power because they can have state power. They can essentially become states within the state. A large enough landowner can be a de facto legal jurisdiction with its own law enforcement arm. Large-scale landlords and employers can simply make and enforce any rule that isn't explicitly illegal. And in addition to eviction and firing (both of which can be catastrophic to many people) they can simply hire "off-duty" police officers to do their law enforcement. Those cops can use more or less all of their police tools and methods, and they can find a reason to arrest and charge more or less anyone in service of their masters.
And in some US states, it is legal for companies to simply have their own private police force, paid by the company and with all the powers of a state police force.
Something I've contemplated lately is what I call the chaos monkey economy. Since it's hard to politically gather the will to fight any given monopoly, we should just roll dice to do it.
Every year we look at firms above some size, and if they fail the saving throw, we liquidate them. Everyone who works there gets 6 months severance, all supplier contracts are terminated, everything they supply likewise. Get a bankruptcy administrator to sell the chairs and real estate, give the shareholders whatever is left.
If it's truly valuable what they do someone will find a way to do it again. If it's just a power position they were exploiting, we'll be free from their tyranny.
I also agree, that we lose real and valuable economic agility, when we fail to let big companies die and be picked apart / liquidated.
We effectively eliminate the bottom half of the food chain (decomposers, etc), to keep formerly apex predators alive with processed food pellets, in a zombie like state. But one day we’ll run out of food pellets, what will happen then?
We don’t allow whales to fall anymore [1]. And it hurts the ecosystem.
> people have trouble with accepting that in the end nobody actually wants to be in a society where companies can do whatever they want and end up being a negative contributor to society
Consumer prices fall, and US consumers' brains just turn off when you show them slaves in the supply chain.
Consumer prices rise, and then people hit the street - everywhere, globally.
It doesn't really matter if their dollar is going to Amazon or 1,000,000 small main street shops. Indeed, both are sourcing the bulk of their goods from places with slave labor. Your gripe is about low prices, not "society," and like, what's your solution?
But when it comes to monopolies I just don't see them ever going away now. Too much globalization combined with lobbying power and corporate veils
tl;dr: it doesn't cost a million dollars to effect political change with money.
I think politically engaged (and frustrated!) people overestimate the exclusivity of lobbying and the power of donations. My understanding (I can't find figures right now) is that you can get a lot of access for probably less than you think. Sick of potholes? Donate $1000 to your mayor and you might find yourself face to face complaining about how many tires you lose per year.
I think someone wrote an article about how much it costs a single person with a single issue to get attention from a politician ('s team), or how little it costs, as the case may be. Yes, hiring a lobbying agency is more expensive, but that's more of a wide-spectrum approach.
There is enough money in these HN threads for people to donate $1000 to each of several politicians in the pursuit of tightening antitrust enforcement, but there's probably just as many who support the current policies. I didn't say it would be easy, but with some money and organization it's not impossible. Of course that's how every special interest started...
Yeah, because the potholes can't donate $1,000 to the mayor to keep them around. Perhaps in a future world with sentient potholes, this will become more of a problem.
Is it not obvious why this approach doesn't scale to confronting monopoly power?
The pot holes play a trivial role in the example. The point is that face time is much cheaper than people make it out to be, and politicians don't have time to be doing deep research on the hundreds of applicable topics they vote on.
I believe it was Al Franken I heard talking about this, and he said that often times politicians end up voting with the lobbyist desires because no one ever lobbied the other side of the issue. For instance an energy lobbyist asking for the inclusion of exemptions for it's potentially overweight trucks on local roads to support the new gas well jobs created, that "will easily make up the potential and definitely trivial road repair costs".
Nobody shows up to lobby the other side of the story. The energy company painted it perfectly as a 100% good thing, while someone could have donated $200 and after bit a research shown it was actually a sham and the official would have agreed. But no one did.
This has had a big impact on the economies of regional mid-sized metros as jobs consolidated in coastal megacities. Arguably, this resulted in a lower quality of life in both classes of cities.
No, many people incorrectly equate a monopolistic, pay-to-play, regulation-captured plutocracy with capitalism.
Fundamentally, capitalism is about handling economic planning in an efficient way by free-market autoregulation and policy makers who nurture competition to ensure that process continues to happen efficiently.
Your definition seems closer to ordoliberalism [0].
If competition and free markets are a necessary components of capitalism, then you would conclude - for instance - that the US stopped being a capitalistic country in the late XIXth century with so many prominent trusts. Or perhaps it never was capitalistic before WWII, since policy makers did not nurture competition but rather attempted to shield local industries from foreign competitions.
[0] Wikipedia definition: Ordoliberalism is the German variant of economic liberalism that emphasizes the need for the state to ensure that the free market produces results close to its theoretical potential
I was all set to say I disagree with the comparison to ordoliberalism pretty strongly with the following statement: There is a key difference about how often I think, from the perspective of a government official or regulatory body, the best policy would be to do nothing.
Then I found myself in significant agreement with the following paragraph from the Wikipedia article:
>Ordoliberal theory holds that the state must create a proper legal environment for the economy and maintain a healthy level of competition through measures that adhere to market principles. This is the foundation of its legitimacy.[9] The concern is that, if the state does not take active measures to foster competition, firms with monopoly (or oligopoly) power will emerge, which will not only subvert the advantages offered by the market economy, but also possibly undermine good government, since strong economic power can be transformed into political power.
However, I still hold some skepticism about this concept, since it often seems like, at least in the US, that government interventions are what serve to dissuade competition.
Either way, thank you for your input. I find it very interesting, especially because I've often admired the Germans' modern economic management which seems largely based on ordoliberalism.
Note that I was not trying to make a statement on whether capitalism is great or which variety of capitalism is best. Rather I pointed out that the word "capitalism" is not a synonym for "free markets", both when used by laymen and by academics.
Don't forget media companies. Everybody forgets media companies because media companies that have no qualms writing articles condemning mergers by Bank of America have a different incentive when it comes time to look in the mirror.
And the ones you mentioned have major regulatory hurdles to expand internationally. In industries where a single player can dominate multiple markets we are down to 2-3 major competitors, worldwide. See airplane or train manufacturers, beer companies, computer chips...
This has all been financed by more than a decade of low interest rates which fuelled the M&A.
Low interest rates have helped, but I feel like it's primarily the relaxation of regulations that fueled things. We had really low interest rates for a decade or two after WWII, but I don't think we saw the same rate of business consolidation.
I think it is entirely the opposite. It is all about regulatory capture. You put in place firm regulations that only the largest multinationals can comply with, and in most cases have written themselves to set the bar high and exclude competition
That's a good point. It's probably some optimal combination of the two. Firm regulations to make it harder for small companies to succeed and rolling back regulations that protect the consumer so companies can improve profit margins.
"Relaxation" of regulations has been sliding downhill since about the 50s, but it reached a fever pitch during the Reagan presidency.
The "new conservatives" and religious fundamentalists found they had a president they could control who was slowly forgetting everything he knew, and they used that to the fullest advantage.
Much of where we are today is due to the processes that began then, from (lack of) fairness in news reporting to the permissive corporate laws that allowed private equity and corporate raiding to relaxation of banking and securities laws that allowed 2008 to happen.
There have been some ups and downs between the 80s and today, and a few Democratic years, but in general the slide has continued because once money gets into politics, it won't leave quietly... it has to be forced out.
Exactly correct. The FTC and SEC have failed us completely in the 21st century. Things have gone bad ever since the focus of all companies has been shareholders above all else.
yes it is def. not tech only. telecom, banking, airlines are great examples as well. One recent example. My phone company Sprint got acquired by T-Mobile. Btw, Sprint used to be Spring PCS many years ago which I think was a merger b/w Sprint and PCS. Consolidation/mergers are endless.
> Until 1995, US banks couldn't operate in more than one state.
I can't think of a worse example of regulation. People obviously want to be able to access their money when they travel 30 minutes away. Your example undermines your point.
Huh? My money stays in my bank. If I want to spend it in another state that's what Visa and MasterCard enable, or I can carry cash, or directly transfer to another bank account in another bank across state lines. My bank can do business with any number of companies offering the ability to spend money nationally such as Visa, MasterCard, PayPal, Venmo, Zelle, Coinbase, etc. Separating these concerns is good for consumers because it encourages competition and innovation and banks themselves are incentivized to offer access to new capabilities instead of preserving the status quo because they profit from owning the means of spending money.
Look, I understand most hacker news readers do banking online, but the notion that banks are limited to a single state requires either that people rarely go out of state or never need to go to a physical branch. Neither is true in 2021. The former (not traveling) is more common than the later (not needing to go to a physical branch).
You seem to be proposing purely online banking. I take it you don't own a home or a car or a business? Most loans still require an in person meeting.
I was approved for a $550,000 mortgage over the phone, during COVID times. They verified my identity documents electronically, verified that the place I was buying existed using the digital property registry, had their appraiser go out, charged me for the appraisal, and placed the money in escrow with my notary. If they can do this during a pandemic, why can't they do it all the time?
How many companies were started over the last 20 years where the expressed goal, the "win condition" in the founders minds, was a buyout?
The idea of building something neat is a lot more attractive than running a business that sells the neat thing to customers. The people who want to run businesses are in the lovely position (for them) of having more fresh, good ideas offered to them than they can review, much less use.
History repeats! 20 years ago, some business exit plans basically boiled down to "...and then we'll get bought by Microsoft!" Not too bad, at least for the founders.
Especially if your goal is to land a nice FAANG job anyway. It's gotten to the point where interviewing is so competitive, exhausting, opaque, and ultimately random, that it might actually be easier to do a bootstrapped start-up for a year and get bought by Facebook than it is to grind leetcode and interview-prep for a year and roll the dice on the interview circuit. I wish I were joking.
EDIT: Wow, no disrespect to founders, I did not intend to trivialize the work you do. Instead of "easier" I should have said something like "more controllable" or "less random".
> that it might actually be easier to do a bootstrapped start-up for a year and get bought by Facebook than it is to grind leetcode and interview-prep for a year and roll the dice on the interview circuit. I wish I were joking.
If you are not joking you are delusinal, this is not even remotly true.
You may not agree with OP, but I don't think this view is delusional. Starting a company is a lot of day to day work in terms of hours, but it's more rewarding than doing interview prep. If you spend weeks or months studying for interviews and don't land a job, you get nothing. If you start a business you generally get paid or make profit the whole time, you build relationships and end up with something tangible to show for the experience.
Personally, I would much rather be running a moderately successful business than studying esoteric programming questions full time. At the least, the relative "easiness" of starting a business vs the normal FAANG interview process is personally subjective.
> If you start a business you generally get paid or make profit the whole time
What tech startup is this? Profitability is a long road & for a good chunk of the time you're relying on funding to get you through to profitability. You might get paid but how much you withdraw impacts your runway.
I agree with you that it's a way more interesting journey, but it is by no mean "easier". Especially since OP was talking about getting acquired at the end. Just keeping your business alive is hard enough, let alone being acquired by one of the FANGs.
It's not easy to get acquired by a FANG, but if you're okay with acqui-hire terms of most companies, you'll eventually get acquisition requests if the startup gets a little bit of press or has some traction. I've personally gone through this process several times already, turned down a few acqui-hire requests, and eventually accepted one. One of my startups only lived for 4 months before it was acqui-hired, which was still more enjoyable than doing 4 months of interview prep.
In hindsight, if I accepted my first acqui-hire request, I would've eventually got hired into Google because the startup that wanted to hire us was eventually folded into google, but honestly it's hard to tell from a distance which companies are going to be acquired by a FAANG.
I was part of an aquihire and got screwed every which way. As the acquired's only person in my position and required (almost! I'm not delusional) in order to transition the company, I should have driven a harder bargain when deciding to go along with it. In the future I would not go along without a significant retention bonus, like, say, a percentage of the purchase price that reflected my contribution.
I guess it depends on your previous experience. If you're familiar with actually building a software company, know good people to employ and know a problem that needs solving, it probably is easier to go that route than having to learn the whole interviewing-scam thing that is happening today, in order to just be employed.
Helps that building a company gives you real experience as well while prepping for interview just gives you that, preparation for the interview, while the real job is different than the interview.
I think it really depends on your background. For people with a questionable job history, poor credentials, modest intelligence, a speech impediment, and a criminal background self funding to Raman increases in difficulty less than working directly for Facebook. However, ridding the VC train has a lot of the same dependencies as working for Facebook, but is vastly more difficult.
The same is true of networking and friends and family financing. I might look at scraping together a ~200k seed round as trivial, but that’s not true for everyone. On the other hand if 5 of your collage friends are working a FANG companies that’s also a huge leg up.
We’re not talking about bootstrapping for a year, op said selling to Facebook in a year. To pull that off means awesome traction or clubhouse level hype or deep serial founder connections, or corruption at high levels.
All of these are much more difficult to pull off, often requiring years, than simply hitting the books for a few months
The companies that FAANG acquire are usually mid sized, 50+ employees. Getting to that size, in a particular industry that will be of acquisition interested is not going to be easier than getting hired.
Might get you hired at a higher level though, but yeah delusional to think it would be easier.
what's the actual title of this book? I couldn't find it (my google-fu probably isn't very good, but "Nicholas Carson" is not a very unique patronym...)
Most people aren't good at self-directed study of hard things. Taking a class on algorithms at a good school is one of the best ways to learn the challenging material, period. The ability to ask a real human questions when something just doesn't "click" in your brain is invaluable.
You're going to learn novel things in an Algorithms class that you can't learn online - but the way it's taught is easier for most people to digest the material. Motivated/driven/talented individuals can absolutely learn the material themselves.
This is true, since this forum is startup oriented you'll get hate against big companies and pro for startup. Biased but, have to see the conflict of interest
This is not anywhere close to true. Have you built a bootstrapped startup from scratch and negotiated an acquisition? It's far, far harder than practicing a few leetcode Facebook problems and getting a referral.
Agree 100%. I've bootstrapped, I've been acquired, and I've gone through the FB/G/etc. interview processes. Going through those interviews took a few weeks of light prep, whereas bootstrapping to acquisition was a multi-year slog. Just the due diligence portion of the acquisition too many, many, many times the effort of job interviewing.
I concur. My sparse LinkedIn profile shows decades of doing CRUD work for no name companies and I have had recruiters from most of the major tech companies reach out to me. No I couldn’t pass any DS&A tech screen without a lot of preparation.
Even now that I work at one of the Big 5 tech companies, I clearly state that my role is not officially development, I still have recruiters reach out to me from FB for development positions.
Yeah, but the discussion was about referrals. Referrals are for getting your foot in the door. You don't generally need them for FAANG. You just need a half decent CV.
The hard part is passing the interviews, but referrals don't help with that, from what I know.
There was no “confusion”. The only purpose of a referral is to get the interview. If an internal recruiter reached out to you, a referral isn’t necessary.
Either way you still have to go through the same loop.
Yes, I “work for a FAANG” like many others do here.
> Especially if your goal is to land a nice FAANG job anyway.
I wouldn't just say getting acquired by a FAANG company. I work for one of the biggest health care companies in the world. Last year they acquired over 200 companies with the goal of exceeding that this year.
They literally are buying companies whose technology they would rather buy then build themselves. If you knew what my company was looking for (machine learning, AI and automation) you literally could start a company with less than ten people, focus your work on one of the three areas and have a better than decent shot of being acquired by the company I work for in a span of less than 5 years.
What would take longer? Building that company with a singular focus on a singular product my company needs or achieving a senior level knowledge of Javascript for a full stack developer role? I would say at that point its a toss up.
> It's gotten to the point where interviewing is so competitive, exhausting, opaque, and ultimately random, that it might actually be easier to do a bootstrapped start-up for a year and get bought by Facebook than it is to grind leetcode and interview-prep for a year and roll the dice on the interview circuit.
Not sure about founders but sometimes you have to interview with the Big Tech Co. as well to keep the job after acquisition.
I get what you're saying but none of those words work.
There are some people who are very well networked and can repeatedly start and sell companies by leveraging those connections as a business model in itself, but this is extremely rare.
Building a business to even be attractive enough for an acquisition is magnitudes harder than any round of interviews will ever be, but I do agree that those interview processes are a joke now compared to the talent they're designed to find.
Most of this tech has strong network effects. And while the marginal cost of shipping an additional unit tends to be close to 0 (creating the incentive to grow almost boundlessly), the costs of complying with regulation in dozens or a hundred countries is quite high.
Thus, it entirely makes sense for a founder want to build great tech and a great product, but NOT want to be in the business of complying with a dizzying array of local and international regulations, in a world where they effectively have to expand globally to "win".
Big companies aren't typically nimble enough to respond to the whims of consumer tastes or catch the latest fads.
So, it's a great symbiotic relationship between "big tech" and startups.
Acquisition, cash out, bolt on regulatory and legal framework, wash, rinse, repeat.
Its a no-brainer for most. Put in a couple years of work, cash out big, go live the dream. Every incentive aligns with this though process so why stop doing it now?
Why would you want to cash out out of something you love?
These kind of businesses struggle.
But when you have a rich parents, they you come up with some start up idea, hire a team of people to make it - then yes cashing out is a win. But those people don't look at it as business, as a real thing that adds value for other people, but pure selfishly as showing themselves they can pull this off.
These people also often steal ideas from people who care and love what they do. Often those people become wage slaves in those rich daddy companies.
Then don't cash out. But that's usually a fantasy. Nobody is really "passionate about enterprise saas" or whatever the marketing says.
Founders are interested in control and eventual (financial) freedom, and tend to like building an organization in general. An acquisition provides that freedom while allowing them to build something else in the future with even better circumstances.
Was he? Or was it the opportunity to create a business around new tech and the eventual riches it brought? It seems his real passion is buying islands and racing boats.
Because you might love security for your family’s future more than your work. A bird in the hand is worth two in the bush. You can always start another company.
At any given time, there are founders in the "sprint-to-buyout" camp and those in a "build to own" camp. In any given year, there are many founders who hold to their principle and those who change their minds.
People make choices. Nothing is deterministic. That said, the number of companies founded, run or exited with a buyout win condition mentality is governed by price economics. FB, Google, etc offered a very high price for Android, Instagram, etc. because those M&As were worth a lot to them. Given this, a lot of M&As are going to happen.
The interesting question, to me, is "why is the price so high?" It's silly to get all huffy about M&As and ignore the consequences of M&As.
Your comment assumes that the people buying the business and the people running the business are the same. In the 21st century, this is less & less the case, as people with capital are uninterested in hands-on management.
That's what happens when there's a flood of venture capital money whose intention with its investment is to see a specific return on capital on a specific investment horizon.
I am much further removed from the "startup frenzy" of the early 2010s, but does it seem like this model has trended downward since the start of lockdown?
As optimism about the pandemic rises, it seems like the innovation that you would expect from this kind of volatility never panned out. I suppose capital was pumped into the public market instead?
My understanding is that the vast majority of these M&A destroy capital. The reason to own dividend stocks is not because they pay dividends but because they don't have tons of cash lying around to spend on low value projects or M&A.
It would be a lot more insightful to discuss the aquisitions that have a known positive impact. The truth is probably that each company had just a few very important acquisitions (that should be more closely scrutinized).
Our current tax laws make vertical integration or even conglomerates more tax efficient. Greater scrutiny of anti-competitive mergers is needed, but we should also make separate companies just as tax efficient (VAT tax, etc) and otherwise closely examine how we can change economic incentives here.
> My understanding is that the vast majority of these M&A destroy capital.
I think this would be very difficult to tease out of the data. Many acquisition are de facto defensive, even if they or not anti-competitive from a legal monopoly perspective.
How could one measure the the loss of brand value if the acquired companies were allowed to mature or be acquired by a competitor?
It's also a 'number of acquisitions' vs. 'value of acquisitions' argument.
If you had to guess the 'value' of TurboTax, The Microsoft Office Suite, Macromedia, Instagram, YouTube, NeXT, Pixar, VMware, etc. etc., you'd probably find that the good M&A outweighs bad.
It's just that bad M&A happens a lot can be really bad (AOL Time Warner).
>Our current tax laws make vertical integration or even conglomerates more tax efficient.
>...we should also make separate companies just as tax efficient (VAT tax, etc) and otherwise closely examine how we can change economic incentives here.
"Destroy capital" is unavoidably speculative, I think. I'm not sure it's the most useful frame. No need to be abstract if we're referring primarily to a few large companies/conglomerates.
Instagram, Whatsapp, Youtube, Android, Doubleclick, etc.. Those acquisitions are undoubtedly a major part of how Google & FB got to here... and here is a good place for shareholders. IMO, it's hard to argue management destroyed value, but we don't ever know alternate realities.
Either way, I think there's a strong case that "competition for monopoly" is the key dynamic here. A business similar to adwords-google but with only 1% of the market share is worth way less than 1% of adwords-google. Think of Yahoo/MSFT's attempts at adwords' runner ups. How much is reddit worth, relative to FB? There are lots of examples. Even if the market does have multiple contenders, the power curve tends to be mighty in modern, software-centric economics.
For a variety of reasons, strong pressure to consolidate appears to be the case often. Whatever those reasons, this creates/describes a strong incentive to consolidate. We know empirically that consolidation happened, and acquisitions played a role. Consolidation also happened in cases where acquisitions didn't play a major/obvious role.
Tax laws are one of those reasons, but not the only ones. There's low interest rates, the laws of other countries, the business cycles, financial markets, etc. It's financial markets that have the operative say on capital creation vs destruction. They value FB highly, and have usually seem pleased with M&A in terms of demand for the stock.
There are also "natural" reasons for M&A, and consolidation more broadly. Software is cheap to replicate/scale and is often winner-take-most. Media is similar. Ad markets (and marketplaces generally) exhibit network effects. Networks (like social networks) exhibit network effects.
IMO the whole theoretical/legal framework of antitrust is quite bougus, in 2021. Monopoly isn't just about pricing power, and whatever else ancient economists observed in previous centuries.
> Monopoly isn't just about pricing power, and whatever else ancient economists observed in previous centuries.
This understanding of monopoly has only existed since the mid-20th century. Prior to that, the definition of a monopoly was more expansive and included analysis of market & industry structure.
The IMO best contemporary overview of the legal issue as it pertains to tech is this piece[1] by Lina Khan. Love the subtle irony I did not catch until today in the title, "Amazon's Antitrust Paradox". It cites and argues the opposite of the Bork piece in many respects.
Can you tell me who kept your packets coming during the covid lockdowns?
Huge corporations are important. They possess the capital, logistics and capacity and institutional knowledge, as well as the resources to absorb shocks during crises. They are able to operate society at scale.
On average big business pays higher wages, provides better benefits, is more productive. Monopolistic competition is more dynamic and delivers better outcomes than highly competitive small-business.
> Can you tell me who kept your packets coming during the covid lockdowns?
Mine? Mostly a government company. But secondly a specialized logistics one that outsources last mile delivery almost everywhere. I'm impressed by how many places decided to concentrate shipping on that one, and how well it works.
Anyway, if size is that important for logistics, it's not some progressive taxation that will change things. On semiconductors, for example, it will certainly not make any difference. And if size is not that important, then not having one or two companies killing every competitor due to concentrated power overwhelms any possible loss you may come out with.
Not necessarily disagreeing but I am curious how you ultimately came to such a general conclusion. I can see both sides: E.g., Walmart may be good for many in society by offering lower prices, while simultaneously being bad by putting smaller, better paying jobs out of business
Ideally, we wouldn’t have corporate taxes. They’re well-intentioned as a tax on the wealthy, but it would make much more sense to just tax the people who are wealthy! Tax them more than we do today, and get rid of carve-outs like Capital Gains.
> My understanding is that the vast majority of these M&A destroy capital.
It'd be interesting to see whether the modern tech industry is an anomaly with regards to this longstanding pattern. In particular, I wonder there's an exception for the typical acquisition of smallish, fast growth startups by a tech giant who can generate synergies by quickly integrating the tech on to their platform. Historically these types of acquisitions wouldn't show up in the M&A literature, because the targets are private companies, and the standard estimation techniques rely on public equity returns.
> My understanding is that the vast majority of these M&A destroy capital.
The FAANG stocks have very high compound annual returns stretching over more than a decade. I don't think there's evidence that those returns would be higher without their many acquisitions or evidence of capital destroyed.
It can be argued that whether M&A on net is capital generative or destructive depends on the management team and their ability to successfully integrate the acquired company's team, products, and technologies. Which translates to bad management destroys capital, which is an obvious truism.
I agree that returns would not be much different if they had avoided bad M&A. They have tons of cash and have to do something with it if they don't give it back to shareholders. Amazon has historically had the least amount of cash sitting around and thus has done the fewest acquisitions (FB may be less, but their market cap is smaller and their business is less diverse).
I also agree that returns have been greatly improved by a few key acquisitions for Google (Double Click, Youtube) and FB (Instagram). For Apple and Amazon I don't know where they are benefiting from their M&A (this is likely my ignorance, I would be interested to know).
I just think it makes more sense to focus on a few key (anti-competitive) acquisitions than to complain that big companies do hundreds of M&A deals over a couple decades.
It's possible for a company to benefit from an M&A deal in a way that is not anti-competitive.
> For Apple and Amazon I don't know where they are benefiting from their M&A (this is likely my ignorance, I would be interested to know).
It's mostly around specific and niche tech in the case of Apple, which is a good example of the above IMO. Unless they involve tons of patents (which is not my impression) they aren't really anti-competitive. Other firms can develop this same technology should they wish to make the investment.
I’m sitting here wondering whether there might ever be a tax on user data. It sounds a bit strange but I do feel like we underestimate how much data consolidation creates uncompetitive environments.
Even worse is that all of this data can be used to infer other data. Once you know enough about a person, you can start making some alarmingly accurate guesses about them. I'm hoping for a lot more than a tax on this kind of data, myself.
Yes, tech firms incinerate capital on these deals (generally, Google particularly). It is confusing cause and effect: these firms are large (with little to no shareholder oversight), and so can spend large amounts of money on useless acquisitions.
The effect on innovation is the opposite: ppl start up companies knowing they will get bought (I wouldn't call this innovation but others would).
And your point about dividend stocks is wrong. Dividend stocks are usually cash-generative businesses that have high ROI but are capital constrained. For various behavioural reasons, people underpay for these stocks...although you have to factor in that dividend stocks will generate taxable income, so the returns tend to be overstated. Either way, it is neither here nor there...the question is about what you pay and what you get. You pay a certain price for marginal ROIC, the question is whether the price you are paying allows a decent return (generally speaking, I don't like dividend stocks, they are slow-growth, I will have to pay tons of taxes, and I will have to work out how to recycle the capital...I would much rather own a stock that can retain my capital and invest it for me at a high rate).
Btw, the reason why M&A happens and destroys capital is because it is a very easy route to growth, investors aren't sophisticated about value-destroying deals (if they result in growth in EPS), and comp is usually based on growth. It is a pretty toxic combination (you can't push on a string, most businesses can't grow fast, paying execs doesn't change that so the execs walk away with a big sack of your money and you end up with nothing).
>My understanding is that the vast majority of these M&A destroy capital.
My understanding is M&A is how large, stable companies that are focused on maintenance activities ultimately fund R&D. It would be interesting to see how M&A compares with in-house R&D in terms of "destroying capital"
Even if true, it's irrelevant. The vast majority of VC investments also lose money, or as you put it "destroy capital" -- that's just high-risk investment generally. Nobody knows in advance what the future holds, which is why you spread your risk with lots of investments (or acquisitions).
But as long as you have enough runaway successes, then acquisitions are an overall profit-making, not profit-destroying, strategy. Even if the profit only comes from a small minority of them.
And that's only if you're counting the direct future profitability of an acquisition. Many times, the acquisition is also for key expertise or employees that may otherwise be prohibitively difficult to get, patents, the only way to compete in time, or is even strategically defensive -- to prevent your main competitor from acquiring the same critical technology/team.
I think the point is that there is some real business subsidizing the failed M&As. If a VC lost money on average (mean) with each investment, they’d run out of money, and the problem would self correct.
If a company is able to print unlimited cash, they can use the revenue on unlimited ill-advised acquisitions, and do unbounded damage to the economy.
> there is some real business subsidizing the failed M&As
Citation needed. This is a common claim, but it flies in the face of common sense and financial incentives.
Corporate boards simply do not approve acquisitions because they've got no better ideas of what to do with cash, that's a fantasy. Boards are held accountable to investors, and investors want to make money, not fritter away cash. Investors want rising stocks or dividends at the end of the day, period.
Like I said, acquisitions are investments and investments can be risky, and so it's super easy to say in hindsight that an acquistion was dumb and that the board must be irresponsibly frittering away money instead of returning it to investors. But hindsight is always 20/20, right? As a general rule, companies simply are not "subsidizing" M&A's. It's just not how businesses or boards work at all.
Instagram was bought for 1 billion and is now estimated to be worth over a hundred billion dollars. Facebook has acquired 89 companies according to crunchbase so even if all of those cost a billion each which they didn't, Instagram would have made up for all of them single handedly.
> If a company is able to print unlimited cash, they can use the revenue on unlimited ill-advised acquisitions, and do unbounded damage to the economy.
At some point, they're still bound by what lenders will give them or how much investors will buy their stock for.
But apply the same to a government that can print unlimited cash..
(We may quibble over "unlimited" but it has been US Fed policy for decades and appears to be accelerating now.)
Big Tech got so big because digital technology is different from preceding industries in that increasing (not decreasing) returns to scale prevail. In particular, in software where marginal costs are near 0. It's a different ballgame. I think regulators have figured this out but for the most part it appears that they don't know how to act upon it.
Traditionally, you had _decreasing_ returns to scale. What's new with digital technologies is _increasing_ returns to scale. Very counter-intuitive for traditional economists - or even business people. People like Gates, Bezos, Brin & Page, Zuckerberg and so on have ridden this for all its worth. Let's out distance them as much as we can before they figure this out. Whether competitors or regulators.
That said, I like the story about someone observing Gates at, I think, a graduation ceremony where Gates had brought along a biography of Rockefeller (John D.). Did Gates know before or after the fact that MS had in fact used a competitive strategy comparable to Standard Oil?
Meaning, unlike increasing returns to scale that was something for which there was an historical precedent. The basic idea being: when my competitors revenues go up, my revenues also go up. A fatal long-term proposition for those competitors.
GP is talking about the marginal benefits of scale. In manufacturing, there is a floor at which increasing scale doesn't decrease the cost of making each additional unit. No matter how much a widget company automates their factories, they can't bring down the cost of a widget below the cost of the raw materials. At some point, investing into making widgets becomes a negative ROI.
That often never happens with software because network effects allow each unit of raw material (servers, data, etc.) to produce more value as part of the whole. It would be as if a widget factory could make 2 pounds of widgets out of 1 pound of raw material when it double its sales.
This is a strange analysis. "Number of acquisitions" seems like a weird metric, without accounting for their significance (in purchase price, impact on the business, or any other real-world metric).
facebook buying Instagram was probably more significant than all the other acquisitions combined.
> "Number of acquisitions" seems like a weird metric, without accounting for their significance (in purchase price, impact on the business, or any other real-world metric).
This comment sounds like the nirvana fallacy striking again.
There is no perfect metric for measuring something like overall market dominance.
Thanks to a series of supreme court rulings, the traditional approach has been to look at consumer harms. But that metric alone fails to account for the way modern large conglomerates make money: not by gouging the consumer, but by dominating entire industries.
So how else can you look at it?
Acquisition are just another lens. Is it an imperfect lens? Yes, of course. I challenge you to find an analysis that isn't.
But is it still meaningful? Yes, I absolutely think so! It is undeniably the case that these tech giants have used acquisitions as a way to protect their market position. So it absolutely makes sense to analyze their behaviour from that perspective.
Furthermore, this is a news article not a whitepaper. Yes, there is an enormous amount of nuance in this kind of argument, and if you were prosecuting these guys for antitrust violations in a court of law, you'd probably do a deeper dive.
> facebook buying Instagram was probably more significant than all the other acquisitions combined.
How do you know that? There's simply no way to know how some of these companies would've fared because these anti-competitive practices have ensured that promising startups are smothered before they become a threat.
> How do you know that? There's simply no way to know how some of these companies would've fared because these anti-competitive practices have ensured that promising startups are smothered before they become a threat.
Exactly, and adding to that: what about the tons of smaller companies/startups bought for a unique technology that was implemented under the hood across major products of the tech giants? We don't know about them except if some former employee leaked it, most projects will be private/secret and the public at large will never heard about the impact.
Think lots of small "Doubleclick"-ish companies that were bought for a small set of features that were then transferred to major products.
Alot to agree with here - how would Google have faired without being able to strategically acquire companies that made specific tech for ads and search?
Google buying Doubleclick helped them crush the ad market for publishers.
Number of acquisitions is interesting, though, because you can also phrase it as "number of potentially viable independent companies that no longer exist". We are better off with more independent companies.
They all learned from MS. MS tried to buy Netscape but didn't offer enough and got turned down. So MS set out to use its position to boost its own browser instead, anti-trust followed because it was obvious MS was using its position to muscle out an independent company.
For the big Tech companies now, small acquisitions are win win wins, they get the people, they get whatever was developed and they permanently avoid Microsofts Netscape situation.
That being said, I'm guessing no small number of these startups were setup with the express purpose of being bought out like this.
> For the big Tech companies now, small acquisitions are win win wins, they get the people, they get whatever was developed and they permanently avoid Microsofts Netscape situation.
I have a theory that this is why MS treats its research division staff and interns so well. It reduces the amount of competitive pressure MS would face if they were all working elsewhere/on their own startups.
Many corporate acquisitions have the sole purpose of killing off/absorbing companies early, before they gain traction in the market and become viable competitors.
Focusing on real world metrics will give a very incomplete picture of the impact acquisitions might have had on the market.
> facebook buying Instagram was probably more significant than all the other acquisitions combined.
Deja News was probably the biggest tech acquisition by a FAANG company. The average white collar worker spends ~6 hours a day in their Gmail, and about 5 min a day using search.
As someone intimately familiar with that software, I doubt this. Every line of the Gmail delivery stack is home-grown, but if you were to identify an acquisition that most influenced the project it would be Neotonic, not Deja.
I mean, the UI/theme was clearly borrowed, but that's not necessarily any indication of the backend implementation. And they probably both use bigtable, but so did basically everything customer facing at the time.
Yeah, this is the version I remember also. PB has said many times that he built the first version that could only display threads of his own email in a day. But going from a series of raw email messages to an email thread that can be displayed conversationally on the web is a multi-year project, so clearly there was some already existing code doing the heavy lifting.
E.g. the email parsing code in Thunderbird dates back to at least the late 80s, and even after decades of working on it at a cost of hundreds of millions of dollars, it's still a work in progress.
It makes some sense. The more acquisitions, the higher the chance of doing well (that wording doesn't apply to price) in the metrics you mention. Especially if the perspective is extrapolating the past to the future.
The thesis of the articles seems to be: Big tech will stay dominant because they will keep buying lots of companies and they will likely continue to win with some. To stop this, blah blah law changes or something (I only skimmed the article).
Yes, I would have wanted to see the graph of acquisitions weighted by purchase price but that data is hard to find for many acquisitions. Impact on business (e.g., revenue contribution) would be even better but requires subjective judgment and estimation.
The thing that’s missed is that vertical Integratron is far more efficient for core products than relying on third parties.
Apple won out over Microsoft in consumer electronics because they were able to make decisions up and down the stack as a unit whereas Microsoft had to deal with layers of device makers and consortia.
All the talk of breakups and “big is bad” ignores the fact that vertical works better.
I don’t think it has to be this way. I think it’s entirely possible that a network of companies can outperform a monolith with the right kind of coordination.
This would be a new, evolutionary strategy, and would be good for everyone.
It won’t however, emerge if we roll the clock back to the late 90’s by force.
> All the talk of breakups and “big is bad” ignores the fact that vertical works better.
That's not even close to being universally true, and good/bad are in the eye of the beholder. Is it better or more efficient for the people who assemble the phones? Is it better or more efficient for the retail employees making minimum wage? Is it better or more efficient for app developers who lose 30% of their revenue to private taxation, or the businesses that never reached their potential because a BigTechCo launched a competing product at a loss?
> It won’t however, emerge if we roll the clock back to the late 90’s by force.
It might, but I can absolutely, guarantee, beyond a shadow of a doubt that we don't get a more democratic solution if we leave the current stakeholders in their current positions of immense power.
> Is it better or more efficient for the people who assemble the phones?
yes. Factory work is better than subsistence farming. And big tech has done 100x more than anyone else in the consumer electronics supply chain to push for better working conditions in those factories.
>Is it better or more efficient for the retail employees making minimum wage?
Yes. Improved margins are what allow wages to rise. Inefficient businesses don’t have the money to pay employees more. Apple retail stores pay on average 18$/hr vs the 10.50 a mom and pop might be able to afford to pay someone.
>Is it better or more efficient for app developers who lose 30% of their revenue to private taxation, or the businesses that never reached their potential because a BigTechCo launched a competing product at a loss?
Yes. Software distributors used to pay 50% to retailers.
> Factory work is better than subsistence farming.
Working in a 1900's Chicago meatpacking plant may have been better than subsistence farming too, but the alternative to working in bad conditions isn't going back to farming, it's improving the working conditions. Big tech has NOT done 100x more than anyone to push for better working conditions. If they really wanted to provide good, first-world working conditions in their factory, they could do so. Yes, their costs would go up, that's what happens when you stop subsidizing consumer products with labor abuse.
> Yes. Improved margins are what allow wages to rise. Inefficient businesses don’t have the money to pay employees more. Apple retail stores pay on average 18$/hr vs the 10.50 a mom and pop might be able to afford to pay someone.
Is the Apple store representative of all retail? And further, with Apple's massive stack of cash in the bank, shouldn't they be paying their workers even better? Are they not a big part of getting that premium margin for apple?
Further, that doesn't seem like a better or more efficient deal for entrepreneurs. Should we be happy that most independent electronics stores have been replaced by branded stores and Best Buy?
> Yes. Software distributors used to pay 50% to retailers.
More bad faith arguments huh? I guess you mean before the internet, when they actually had to ship physical medium and deal with retailers? Keystone pricing is pretty standard in that setup, and at least you had a broad choice of distributors to pick from. There is no justification for the high fees or the lack of distribution options in 2021. It's almost pure profit for the landlords.
> That's not even close to being universally true, and good/bad are in the eye of the beholder. Is it better or more efficient for the people who assemble the phones? Is it better or more efficient for the retail employees making minimum wage? Is it better or more efficient for app developers who lose 30% of their revenue to private taxation, or the businesses that never reached their potential because a BigTechCo launched a competing product at a loss?
Yes. It works better for making technology.
Nothing you have said contradicts that.
Every single one of the indicators you mentioned is better now than it was in the 90s.
What you are calling for is more opportunity for all these people to build wealth.
Making existing industries work less well is not going to achieve that.
Things that might: universal health care, student loan easing, increased investment in impoverished communities.
Blaming things that work well and breaking them is silly.
You haven't proven that at all. You took one instance of Apple disrupting Microsoft's PC dominance and seem to have extended it to an entire worldview (which clearly ignores the entire MS antitrust saga that took place a couple years before Jobs reinvented the company).
> Making existing industries work less well is not going to achieve that.
You haven't proven that. When AT&T was broken up, it unlocked a host of new technologies (answering machines, modems) that Ma Bell was blocking to protect their existing revenue model.
> You took one instance of Apple disrupting Microsoft's PC dominance and seem to have extended it to an entire worldview
That’s not a reflection of my views.
AT&T is not like Apple. They had a literal monopoly due to access rights.
Apple can’t be compared to AT&T usefully. There is nothing they do that doesn’t have vigorous competition and there is nothing that Apple has that others cannot buy.
Power is power, they have more in common than in difference. I'll stipulate that they arrived at power and maintain it slightly differently.
> There is nothing that Apple has that others cannot buy.
How can you state this as a fact? Even a relatively high-level Apple executive wouldn't know that with any level of certainty.
I don't really take issue with Apple compared to some of the others, but their vertically integrated position means that they don't have vigorous competition. There are only a handful of empire-scale companies that can compete with them at all. Smaller businesses are not vigorous competition, since Apple (or similar) could crush them at any time they want with their scale, as they recently did with Tile.
I like Microsoft's approach more though. It makes the market more modular, since other companies have access to the same resources.
You can say "Apple's machines are easier to work with because better integration". But I'd say that's only a small convenience which doesn't stack up against the huge downsides of this non-modular approach as seen from the societal/economy perspective. My mom and dad can work with a Windows laptop just fine.
Mine too. But it has nothing to do with the hardware or software (I'd argue that for many things the Apple ecosystem makes things harder due to its inflexibility) and everything to do with the fact that whenever they have a problem they can walk to an Apple Store (or call Apple Care) and they are able to help without having to work around my time constraints (job, family, etc...) I suppose that's a type of integration too (the fact that Apple has retail stores and a Genius Bar that for "normal" people works well to solve "normal" problems) but it has nothing to do with pure technological innovation.
> (I'd argue that for many things the Apple ecosystem makes things harder due to its inflexibility)
Yes - many things are harder, but on balance the Apple ecosystem delivers better end user results.
But your point is important - there is huge opportunity for something better.
Apple isn’t standing in the way of that.
The belief that Microsoft or Linux as they stand are somehow better is. (I think Linux is fundamental to what comes next, but only if we people stop pretending it is currently better for end users and stop trying to make it more like an Apple product)
Yes, I don’t know why, but Microsoft doesn’t want spend the money to compete in the face to face customer service space. No big company except Apple does. And I like rewarding that.
I can’t believe Microsoft even opened a whole bunch of stores. They just keep quitting after a couple years. If they were willing to plow some money into it for a decade and keep supporting windows phone and clean Windows laptops, maybe we’d have some competition.
Vertical doesn't unequivocally work better, there's a high external cost.
None of Apple's "stack" is available to other companies because they have no incentive to sell components. The reverse happens, they buy up independent companies (like the touch id folks) and prevent anyone else from using a given piece of tech.
Same problem with Amazon and shipping. Regular schmoes are limited to USPS/Fedex/UPS for shipping in the US. Amazon opting out of the "market" for shipping limits the quality of the shipping services I have access to.
We need to role back to something closer to the 1970s, really. The 90s were ok in tech company terms (at least when the DoJ slowed Microsoft's monopoly) but that was already a full decade into the big-ification of companies.
There's no real alternative but force. You can't evolve from big monopolies into smaller companies, the smaller companies can't even exist in most cases.
>None of Apple's "stack" is available to other companies because they have no incentive to sell components. The reverse happens, they buy up independent companies (like the touch id folks) and prevent anyone else from using a given piece of tech.
As Apple's sales success allows them to invest even more in R&D, their tech stack become an even bigger moat. Competitors are going to find it increasingly difficult to create products that can compete with Apple's tech stack on a technological basis.
I'm less worried about moats (although we should be wary of anticompetitive moats) and more worried about an ecosystem where the already successful companies monopolize access to innovations.
Forget competitors, you can't buy the touch ID tech to create things like door locks. Big companies locking up access to markets means big companies are the sole arbiters of what even gets sold.
> Forget competitors, you can't buy the touch ID tech to create things like door locks.
Doesn’t that mean there is a business opportunity for someone to make touch technology for door locks? Apple isn’t the only company that uses touch sensors.
Maybe. The two biggest consumers (apple and google) of touch id like components won't buy from someone else. So the opportunity is quite small. And it's too expensive for a small company that might just want to build a consumer door lock.
Apple also acquired patents when they bought AuthenTec. So it might be tough even with unlimited money.
Consolidation problems are never an outright ban like a law would be. But raising the cost of entry is just as effective.
> So the opportunity is quite small. And it's too expensive for a small company that might just want to build a consumer door lock.
That just indicates that the value of a modular component isn’t high enough to make it worth building for now.
Touch ID is not a modular component. It’s part of a system and it’s not designed to be used in door locks. It took a huge amount of R&D overall which was worth it to build into hundreds of millions of dollars worth of phones. Touch ID isn’t just a sensor.
It isn’t a technology that can be used in a door lock.
At some point it will be cost effective for a door lock component to be built, but there is little connection between this and touch id.
> That just indicates that the value of a modular component isn’t high enough to make it worth building for now.
This is the dilemma. The value is low _now_ because Apple bought the vendor, rather than purchasing from a vendor. In a healthy marketplace, Apple's scale would fund development of technology that other people could buy and run with. Instead, the market "developed" touch ID and Apple got to keep everyone else from using it for the low, low price of $365mm.
That’s completely wrong. Touch ID is not a sensor. Touch ID is an integrated system that was developed by Apple for phones.
Touch ID doesn’t do anything for door locks. It’s the fact that it’s a tailored for their phones that makes it work better.
The market didn’t develop Touch ID. Apple did.
Fingerprint sensors are widely available in the marketplace and they are better than what was available when Apple bought a sensor company.
In a healthy market, someone else would look at what Apple did, and work out how to apply any relevant concepts to use outside of phones.
This is work that hasn’t been done yet, and is open for someone to do. It’s normal for a general solution to follow a specific one. The idea that Apple should have developed a door lock solution makes no sense.
Authentec didn’t make Touch ID, and wouldn’t have been able to make it as a standalone company and Touch ID isn’t a general solution that others can use.
That means there is still room for someone else to do what Authentec was doing.
> Competitors are going to find it increasingly difficult to create products that can compete with Apple's tech stack on a technological basis.
No one is stopping anyone (outside of US economic sanctions) from getting an ARM architectural license and designing their own CPUs to compete with Apple. There are countless vendors to choose from if you don't have the experience to do yourself, there are IP cores for everything from battery management over memory to AI available on the market.
The problem is that, rather than go the expensive Apple route, most seem to be content to pay top dollar to Qualcomm (or for lower classes, Mediatek) and get buggy hardware and BSPs in return, instead of pushing Qualcomm to deliver better quality.
And for what it's worth, there are serious competitors to every Apple product. There have been Windows laptops with 32 and 64 GB of RAM years before Apple finally updated their line. Samsung puts up a diverse lineup of phones and tablets that definitely compete with iDevices. Sony has AirPod clones (admittedly they're bulkier, but have more selection in earbuds). There are a number of Apple TV competitors - Roku, Amazon's TV stick, Chromecast to name the most popular ones.
You literally just said "no one is stopping someone else from building a vertical monopoly".
The problem with vertical consolidation is _not_ that they prevent other large companies from competing. There's always a scale where you can replicate work and release a competitive product.
ARM is inaccessible to most companies, including companies that don't compete with Apple. In a world where we prevent vertical monopolization, those very nice ARM CPUs Apple and Amazon have on lockdown become commodities and spur all kinds of innovation in other areas.
Who do you think pushes Qualcomm to deliver better quality when the two primary consumers of those CPUs aren't buying from third parties?
The framing here is off. It’s fair to say that catching up with Apple is next to impossible. This has absolutely nothing to do with monopolies, and everything to do with their velocity.
The idea that we have to somehow overthrow Apple in order to build better things is the problem.
Ironically Apple itself had this problem when Steve jobs returned. Microsoft was seen as the ‘problem’ to be overcome and thinking that way prevented Apple from seeing what else was possible.
Jobs explicitly rejected this kind of thinking “We have to stop thinking that in order for Apple to win, Microsoft has to lose.”
The same holds true now - we need to stop thinking that in order for others to win, Apple has to lose.
Apple’s solutions are not the only possible solutions. We don’t have to mimic them.
I don't understand why you keep talking about Apple's direct competition? Vertical consolidation is a very different, potentially more harmful problem than "a mobile phone monopoly".
More competitive phone market is pretty boring. Good ARM CPUs are not boring, there are all kinds of places those would be amazing that Apple isn't going to bother using them.
Apple doesn't have to lose, in a healthy market they'll be able to buy good ARM CPUs just like I will.
The problem is that Apple's solutions are the only solutions that get to use certain technologies because they don't want other people to compete with them.
> The problem is that Apple's solutions are the only solutions that get to use certain technologies because they don't want other people to compete with them.
This just misunderstands what vertical integration is about.
Apple’s solutions aren’t general solutions. They are narrow solutions that work in Apple’s ecosystem.
Apple hasn’t developed general solutions that other people could use. This is the whole point. It’s why they can move faster than a modular ecosystem can.
This has nothing to do with not letting other people use their technologies. They don’t actually have technologies that anyone other than Apple can use.
> ARM is inaccessible to most companies, including companies that don't compete with Apple.
What are you talking about? ARM is literally the dominant CPU architecture for years now, with a lot of CPU/SoC vendors for everyone's choosing. An architecture license is expensive, yes, but you only need it if you want to roll your own cores (and there is at least a dozen AL holders). Everyone who's fine with stock cores can use ARM Flexible Access where you only have to pay per-product fees at tapeout.
That's the reason why all other competitors (Hitachi's SuperH and MIPS being the biggest ones) have all but vanished.
>In a world where we prevent vertical monopolization, those very nice ARM CPUs Apple and Amazon have on lockdown become commodities and spur all kinds of innovation in other areas.
I agree it would be better if everyone were able to buy Apple's CPUs, yes, but the real secret behind Apple's performance is that they own the OS stack and can ruthlessly optimize it for performance. Technically, everyone can take the Android AOSP code and do the same for a given hardware stack, it's just a lot of work that is not much in demand.
> Who do you think pushes Qualcomm to deliver better quality when the two primary consumers of those CPUs aren't buying from third parties?
Uh, Samsung also buys from Mediatek, not just Qualcomm's Snapdragon and their own Exynos line... anyway there are lots of smartphone vendors who could go ahead and differentiate their products by focusing on quality, if they wanted and the consumers would want it. Samsung and Apple together only have 39% of market share (per https://www.counterpointresearch.com/global-smartphone-share...), there's a lot of room for competition.
Environmental pollution also "works better" for companies and yet we regulate it. I don't think this is a false dichotomy, the role of government in business regulation is to modify business practices that are contrary to the best outcomes for society. Not what is more efficient for businesses.
Inefficient decision making creates environmental pollution.
Regulating to make companies less good at decision making under the belief that this will increase opportunity is literally making society stupider. It is the path to idiocracy.
I’m not against government intervention.
Let’s invest in alternatives, and let’s invest in making people’s lives less precarious.
> Apple won out over Microsoft in consumer electronics because they were able to make decisions up and down the stack as a unit whereas Microsoft had to deal with layers of device makers and consortia.
That sounds nice but can't be true. Remember when Apple almost went out of business? It was the exact same situation then.
I'll offer an alternative hypothesis: Apple won out because they executed well year over year over year. They made that vertical integration work for them by slowly making things better faster than the competition.
Apple also never paid a strategy tax. They cannibalized their existing business ruthlessly. This is also unrelated to vertical integration.
Microsoft's key strategy was always market domination by monopoly, paid through the vig of per-CPU licence fees (whether DOS/Windows was installed or not, still largely the case), and extending through "productivity software" (MS Office) and later organisational glue (MS Active Directory / Exchange) and the Web (MSIE).
The DoJ case had Microsoft back off that lever a bit, just as Apple executed beautifully (and with some Microsoft concessions in part devolving from the DoJ suit ... yes, a simplification, my 4th-fav pedants), and then hit it out of the park with the iPod and iPhone (subscriptions, apps, hardware sales, fashion accessories, ...).
Google cracked Microsoft's revenue model with advertising (though that may be starting to give a bit), as has Faceboook. Amazon got where both Microsoft and Google wanted to be: between the buyer and the lion's share of online retail.
Work, comms, adverts, shopping, fashion, and entertainment. There's hot competition for transport (automobiles, whether smart, electric, for-hire, or self-driving). There's not a whole lot of consumer spend left to grab that I can see. (Housing. Utilities. Insurance. Finance.)
By the late 1990s, though I thought Apple were dead. My pet name for "Rapsody" was "Requium". "Hit out of the park" is in that context --- the company had been on death's door. It is no longer.
The same opportunity exists for new competitors now as existed when Apple recovered from their near extinction at a time when Microsoft seemed unassailable.
> I'll offer an alternative hypothesis: Apple won out because they executed well year over year over year. They made that vertical integration work for them by slowly making things better faster than the competition.
You say this is an alternative hypothesis, but it is in complete agreement with me.
Without vertical integration they would have been held back by the rest of the industry. Vertical integration is how they were able to move faster.
> Without supporting evidence, this is nothing more than a post hoc fallacy.
Not really - it could also mean you don’t have industry experience to know what I mean. I’m guessing you weren’t around at the time.
The evidence is widely available for you to check out.
Just read accounts of how industry committees work and look at how industry alternatives have failed to keep pace with Apple’s proprietary alternatives.
> That sounds nice but can't be true. Remember when Apple almost went out of business? It was the exact same situation then.
At that time the company was being run by an executive whose backround was as a flavored soda salesman who tried to adopt Microsoft’s strategy of licensing the OS. That’s why they nearly went out of business.
When they returned to the integrated model and stopped trying to compete head to head, their success returned.
It works better until it doesn't. A company with high market share and positive cash flow can invest in vertical integration. They gain economies of scale. It gets harder to adapt to the market and stay efficient and innovative at larger companies. Or they slowly kill off the competition and no longer find the need to innovate, and settle into money printing mode and monopolistic behaviors.
It's efficient, sure, but Windows still effective counts as an open platform compared to Mac, because so many different vendors are welcome and involved. Closed vertical integration is worse for consumers.
And that consumer standard is also often based on price: Windows platforms are almost always cheaper than the Apple equivalent. So that efficiency doesn't benefit consumers.
I don't think either of those is necessarily a slam dunk. A lot of consumers really appreciate the non-openness of platforms like iOS when it comes to security, privacy, parental controls, and so on. I know your argument is specifically about the Mac, but on the "openness" spectrum, MacOS sits somewhere between Windows and iOS, so iOS is a helpful reference point for where the Mac could end up.
And as for cost— I don't think that's necessarily strictly worse either. I have a Dell XPS now, and it's.... fine. But relative to my old MBP, the screen is worse, the build quality is worse, the trackpad is worse, the keyboard is worse, the power management is way, way worse. So although there might be slightly more compute here in terms of the raw numbers, a lot of corners had to be cut to make this machine work out, and all things considered, I'm not sure that the market is in a better place when even "premium" non-Apple computers don't have the profit headroom to invest in the little stuff.
I'm an iOS convert, so you don't have to sell me on the benefits of a closed platform. But I was referring to more than just software. When servicing an Apple laptop with a broken keyboard last month, I had to find an Apple-brand USB keyboard in order to get it into the recovery menu, because I needed an Apple command key. (Linux works fine with the Windows key for similar types of shortcuts.)
The idea that I needed an Apple keyboard to do something trivial on an Apple machine was... hilarious to me.
Sure, there are Apple-certified accessories out there, but you literally have to buy stuff explicitly catered to their hardware for their software to work right. Whereas anyone else can use "literally any keyboard out there", you need an Apple keyboard to work with an Apple device.
Since I agree with you and don't have a new point to make, I just want to expand on yours.
Consoles - Apple doesn't compete here. Microsoft is competitive.
Smartphones / tables - Microsoft lost here, Apple competes against Google and various hardware makers instead. They probably win in US market share and net profits, but not global share.
Computers / operating systems - Microsoft still dominates in market share over Apple. Opinions vary (strongly) between which is best, but more people buy computers with Windows than computers made by Apple.
Watches, air tags, etc. - Microsoft doesn't compete here.
Accessories - no clue about market share, but I do think Microsoft makes some pretty good keyboards and mice.
You are looking at today - this is about the history.
In 2002, Microsoft was the dominant force in consumer electronics because everyone assumed they needed ‘PC compatibility’ or even to integrate Windows CE.
If you worked in the industry then, Microsoft was discussed in every meeting and was a major player in standards bodies.
That started to change with the introduction of the iPod.
Also - Apple does in fact make most of the important accessories for their own products, and they leverage vertical integration when doing so.
AirPods for example. Bluetooth - the consortium solution wasn’t good enough, not were Bluetooth chipsets. Apple didn’t need to wait for standards changes or persuade a vendor to make anything for them.
It's interesting because there was a post yesterday about how companies hollow themselves out by outsourcing all the pieces, (the example he used was a toaster) until the entire toaster is built by outsiders and the toaster company is just a sales and marketing unit, unable to innovate, whereas apple is the opposite it is basically the only company that is a real outlier to this trend.
Yet Apple doesn't make the boards themselves. Would them doing that be more efficient vs what they do now? How do you draw the line? Where does your theoretical "stack" start and stop?
I think this is all just a big bag of hindsight bias. If the "winner" does something different then people attribute winning to that thing. Reality tends to be more complex.
Hypothetically, say Microsoft and Apple both announced that they planned to move from x86 to ARM on the same day, knowing nothing else, who would you have bet would be more successful?
vertical always works better. until it doesn't. dictatorships, autocracies and none other then the failed Soviet Republics are testament to this. the job of our lawmakers is to judge when top- down decision making stops being beneficial to society in general and our economy in particular.
Software had the promise of massively decentralizing business; anyone with a computer and a bit of knowledge could start hacking away at a new product. It is a bit sad to see big tech becoming a way of even more centralization of power. I guess it had the potential for either; individuals being able to easily capitalize on it, or businesses being able to replicate infinitely and have huge margins from very little input capital. But maybe both are happening at the same time. A double edged sword, like so many other things.
That's the myth we were sold. It's the myth many of us believed. I certainly did.
In truth, greater efficiencies don't decentralise, they centralise. The market area expands. Suppliers or vendors, rather than competing locally, compete regionally or globally. In winner-take-all markets, there is only one winner, worldwide.
There are some twists on this, having to do with regional customs, language, and law, mostly. There's also the time element, where tech monopolies tend to be ascendent, then (often but not always) replaced. Still, a technological advantage can last a very long time, as with IBM and AT&T. Two of today's FAANG date from the 1970s, another two from the 1990s. Dominance can be long-lived.
There were some who saw this coming. Andrew Shapiro's The Control Revolution (1999) kinda-mostly saw this coming, and certainly called out the major aspects. Shoshana Zuboff recognised at least some of the potential in the 1970s and 1980s.
The crowd still believes the lie, for the most part.
In biology we understand fairly well that environmental complexity leads to greater biodiversity. If the Earth's environment were entirely uniform there would probably be only a few species and nothing would ever change.
Global highly efficient markets are like a polished flat globe with a uniform climate everywhere. Evolution would produce only one or two species in permanent equilibrium.
The more I think of it, the more I realize, biology is very much unlike the market in such analogies.
In a way, the market is biology flipped on its side, like a transposed matrix - where in nature, life forms mostly cooperate within their species (or at least ignore each other) and prey on other species, on the market, companies of the same type fight it out, while ignoring or cooperating with companies of different types.
But I think the main difference is scale. The area of influence of a life form - where they live, hunt, reproduce - is very limited. Same is true with companies serving local markets. A local glass factory. A corner market. You say:
> Global highly efficient markets are like a polished flat globe with a uniform climate everywhere.
But it's not just a flat globe. It's a globe with a surface of couple dozen square kilometers! It's literally a single niche. Not even that - it's a cage. Imagine a zoo that decided to put all its animals in a single, large cage. You won't have to wait much before there's only one big animal standing (and a bunch of insects scattering about).
On a more general note: biology is a good example that you can make a complex and robust system by giving imperfectly-self-reproducing agents a lot of space to play in, and then throwing calamities at them to keep things interesting. But I honestly don't like using it as a recipe for designing systems, because of all the waste that's involved. Waste of effort, waste of resources, waste of life. I feel we should avoid this kind of hard self-regulation whenever we can.
> where in nature, life forms mostly cooperate within their species (or at least ignore each other)
This is blatantly not true. There are condiserable levels of intra-species competition in many species. Even in "cooperative" species, those animals cooperate in groups, but then those groups compete against each other. Most predators prey on a very limited subset of the ecology. You seemly cannot reliably predict inter vs intra species like you seem to think.
Also "preying on" is pretty different that "competeing with" and at the ecological scale, predation looks much more like interactions between industries than competition within an industry.
Thus the correct mapping of the analogy in this case is between ecological niches and industries.
Regarding your more general note: I think there is a trade off between efficiency and robustness. Top down heirachical structures (most companies, militaries, etc) are generally more efficient in terms of resources used but are vulnerable to broken/inefficient/disengenous nodes, especially for the higher nodes. Bottom up solutions (markets, grassroots movements, etc) tend to use more total resources but do better at dealing with bad nodes and are thus less failure prone.
I would argue that the best systems tend to layer combinations of these two types of systems.
Edit: In the US for example, we (simplistically) have a bottom up democracy that governs a top down government that regulates bottom up markets that are participated in by top down companies that increasingly rely on outsourcing core functionality to other bottom up markets that that top down particpants.
The market / biology comparison is interesting, though probably needs some work.
Firms, at least to a certain size, are about increased specialisation. That is, they focus on doing one thing. Rather than predator/prey relationships, firms have exchange relationships, arbitraging off of distinct specialisations and differential capabilities, with much of that being supply-chain related.
(A recent discussion of semiconductor fabrication noted that an end-product device might comprise of 1,000 or more individual steps, and 70 or more logistical (that is, shipping) links before reaching the final purchaser.)
Individual organisms are, at least to a first approximation, generalists. They must source food or sustenance, provide for circulation, metabolism, health, etc. Plants have structural and photosynthetic requirements. Many animals have sensing, neurological, mobility, and defence functions. The largest individual organisms still occupy only tiny fractions of the Earth's surface individually --- whales, fungi, slime molds, clonal trees. Past a certain point, organisms simply cannot coordinate at large scale within a single entity.
So the reason single firms fight amongst others of similar stripe is because each is attempting to control a highly specialised niche.
(There's another question of just where and how businesses become extensive. The question of organisation of industry by type or sector goes back to Quesnay and in modern variants seems to be seen as 4--5 distinct levels. I'd argue that it's network-based firms which are most likely to be expansive, though that includes a fairly broad notion of just what a network is. See: https://old.reddit.com/r/dredmorbius/comments/74dm5o/seeking...)
The scale question is interesting. Yes, individual human firms are far larger than the alrgest organisms. But the range of scales found in nature remains larger. You can look at length, volume, mass, or metabolism.
The smallest bacteria are about 0.2 nm in length, which (assuming density of water) is about 310^-17kg
The largest blue whale is 30m in length, and 17,000 kg.
(There are larger organisms, giant sequoia trees, slime molds, clonal trees. They shift the calculus by a few more orders of magnitude.)
That's a length difference of about 150 million (10^8), and a mass differential of about 507 billion billion (10^20). On either measure, the range from smallest to largest firm would be smaller, if only because the human population has not yet reached 507 billion billion.
(In looking at metabolism, values are harder to find, especially for bacteria. A blue whale has a basal metabolic rate of about a half-million kilocalories (food calories) per day, with a total* expenditure larger than that. The metabolism of mammals scales as BMR=KM^(2/3), that is, to the 2/3 power of mass. Economic metabolism is at the rate of approximately $1,000/barreloil.)
By absolute magnitude, the largest firms are of course larger than the largest animals or plants. Much of that comes from an ability to both organise and process inputs at a much larger scale. For an organism to operate at global scale, it would need to physically be global scale. A firm virtualises many of its coordination activities through communications --- a sort of "spooky action at a distance", if you will. James Beniger, The Control Revolution (1986) (one of several books by the same title), listed in the Reddit post above, discusses much of the development of this. In a sense, a firm is a financial, legal, commercial, social, technical, and organisational virtual construct.
What firms can do that organisms cannot is incorporate other freestanding entities within themselves. "Mergers and acquisitions" is not a chapter you'll find in a biology text. It's an extraordinarily common business practice. If not always a successful one.
This sounds unlikely; even with just one species sooner or later a random mutation would give some individuals an "edge" over others in some area, and others would get an "edge" in some other way. Different strategies will evolve, especially if we consider the hunter/prey arms race.
Less biodiversity? Sure. But one or two species? Probably not.
I'm not sure if this applies equally well to large complex systems as it does to comparatively simple and limited systems. A polished flat globe with a uniform climate would still be a very complex system.
Island vs. mainland evolution is probably an apt comparison.
On a mainland (a region with widespread intercommunication within a species), speciation is relatively rare (baring catastrophic events). On an island, any given mutation is proportionately a larger share of the genome already, and has an opportunity to take hold even if there is little or no relative advantage.
(Evolution is a case of natural selection, with the presumption being that that selection is itself beneficial. In truth, "benefit" can be wide-ranging, and genetic drift where a set of equipotent or merely latent advantages occur and are distributed are frequent. There's also the distinction between what I call exogenous and endogenous selectors. The former are imposed by the environment, the latter from within the social behaviour of the species itself (assuming social behaviours). There are also purely random events --- getting hit by an asteroid or consumed by a volcano, say --- though one might argue that vigelance plays a role here.)
But yes, a globally-interconnected world with common trade interests, exchange, languages, etc., is one that's been flattened and made uniform. One suspects that disuniformities may eventually appear and change the economic calculus.
One force that seems highly potent at present, and underappreciated, is the reliance on energy (oil) and strategic minerals, both either only or highly preferentially accessible in specific locations. My view of the post-WWII global dynamic is that it makes far more sense to consider it as an interplay between three major oil-producing regions: the Soviet bloc which was both a largely self-sufficient producer (Baku) and exporter, the Western bloc (NATO, ASEAN, Japan, South Korea) which was a major producer, but relied increasingly on imports, and the swing bloc of the OPEC states (notably Saudi Arabia, though also Iran, Libya, Iraq, smaller Gulf states, and others). The US/NATO posture of protecting and defending global oil production and transport emerges in this context. The Soviet bloc could rely on land-based pipeline transport to a far greater extent.
Strategic minerals, largely derived from Africa, spell out much the rest of this story.
There's more explanation in this to my mind than many of the ideological explanations. My sense is that ideology itself more likely flows from the geopolitical dynamics.
As relates to future geopolitics: the general sense is that oil will diminish in signficance (probably, though not certainly). But an advanced electrified world relies increasingly on exotic elements either not widely available (e.g., coltan), or which, whilst not rare per se, have exceedingly messy extraction processes (the so-called "rare earths", actually reasonably abundant but not ore-forming, meaning that even "rich" deposits are actually low concentrations, requiring much overburden removal, processing, and tailings.
Lithium already appears poised to be the next energy storage medium, and is similarly to oil nonuniformly distributed globally. Seawater extraction seems one possible way around that limitation, though at 1ppm concentrations, that's a challenge. Possibly if integrated with other seawater-based activities (desalination, seawater-based fuel synthesis, etc.).
Software doesn't favor decentralization at all... at least not the current software and Internet ecosystem.
The complexity of software coupled with its absolute rigidity makes it hard to build systems that talk to each other even when specifications are public. When things are proprietary take the difficulty of making software interoperable and add a total lack of documentation and a possibly adversarial relationship with the vendor where they'll try to deliberately shift things to keep you out. (There could also be legal barriers, but I'm just talking about technical ones.)
Then consider the added difficulty of opening systems to interoperability with other systems while maintaining security. If you allow connections from untrusted systems, now you have to be particularly meticulous in the design of your software to ensure there are no exploitable bugs, undefined behaviors, or holes in your permission system. We still mostly program in language that are "insecure by default" and make this hard.
Then there's the Internet itself which is intrinsically hierarchical. DNS, BGP, and the hierarchy enforced by NATs and firewalls that separate endpoints from the "real" Internet all make the network favor a "feudal" client-server model. We shouldn't be surprised that the Internet produces a lot of monopolies and closed silos; software built around the Internet takes on its shape.
Last but not least there's the use of cryptography to enforce walled gardens: certificates, code signature requirements, closed app stores, etc. This adds an artificial barrier on top of everything I mentioned above.
Compare this with older mechanical and analog systems. Even complex mechanical and analog electronic systems are straightforward to examine, measure, characterize, and understand. Ignoring patents and other legal restrictions it's straightforward to build replacement parts or interoperate with physical systems.
People didn't think well about the other side of the coin: if anyone can hack away a product, then what you need to make a lot of money is somehow gather the best minds that can make this machine work for you and monopolize their ideas. This is exactly the strategy behind the FAANG.
It depends on the product. But software has stronger the ecosystem effect and data lockin more so than any previous technology. Think facebook, youtube, Windows, office, apple ecosystem of products. They have two market characteristics: 1. People need to be on the platform that others are in 2. Once you are in you it's hard to leave. Both creates tendency for winner takes all economics. And I think many people knows this. Part of the reason why software companies since the 90s have higher valuation than other industries.
This goes both way: founders create start ups with the idea that being acquired is a valid exit strategy. It's hard to quantify but perhaps not that many start ups would have been founded if they didn't see as many valid options to exit, and a founder wouldn't have created the next big thing if his previous company didn't get acquired.
> and a founder wouldn't have created the next big thing if his previous company didn't get acquired.
Hershey (of Hershey's Chocolate) failed multiple times and went bankrupt each time before finally making his Chocolate company. Repeated failures are absolutely an option.
Anecdotal stories of the survivors from 100 years ago when you could work a bottom of the barrel job for 1 week and cover a months living don't apply today. In order to insulate yourself from failure, you need wealth today to draw upon and cover your cost of living. Many americans don't have a spare $400 (1), they can't quit their job to tinker with a perennially failing side business without ending up risking living on the street. Many americans are trapped.
Hershey was pretty well connected. I'm pretty sure his family bankrolled a lot of his early ventures. This wasn't a "by his own bootstraps" story. But its absolutely a "try try again" story.
Today, there are more "by their own bootstraps" stories. Steve Jobs was the adopted. His original father was a Syrian immigrant, for example. If we go back to the 1800s, the "Gilded Age", the oppression of the "robber barons" was obvious: they destroyed small companies before the invention of antitrust laws.
Maybe we'd like more "by their own bootstrap" stories today, and I'd support implementing policies that make it more possible. (including a new antitrust review of today's companies, to see if they're bad for the economy, like the 1800s robber barons were). But lets not pretend that the 1800s were easier than they actually were.
He's uh, not so popular here these days, but I recently heard a quote by Peter Thiel and thought it was insightful. Not sure where it was from, exactly.
"The way to build a big company is to never get acquired."
This is lazy reporting. Where did the money come from to do the acquisitions? Google and Facebook have great monetization by data mining their audiences for advertisers. All they needs is to buy more eyeballs (youtube, whatsapp, instagram, etc).
Amazon is slightly different. They benefit from the creative destruction caused by physical retail purchases migrating to ecommerce and the subsequent value capture by Amazon. Any revenue increase from them is from behavior changes, efficiency gains, and death of inefficient retail.
More like lobbying to maintain a tax holiday for a very long time. I suspect retail will slowly come back due to the end of that tax holiday, and Amazon's devaluing of their platform with counterfeits.
I'm also not sure that the distinction that you're making here is super-significant. Facebook and Google are plundering advertising spend from print just like Amazon took over retail.
Under Amazon, I would also include commoditizing compute and selling you their spare compute cycles (AWS) as their major efficiency win.
Finally, Amazon is automating warehousing in their logistics (first using automated checklists for people walking around the warehouse, now using Amazon Robotics, formerly Kiva Systems)
The myth that Amazon “sold their excess computer capacity” has been disproven for years.
Just think about it. If Amazon had excess computer capacity and sold it to other companies, what was it going to do when it needed that excess computer capacity? Kick others off?
Yes, that's what preemptible spot pricing is; you pay a discounted rate for some compute time with the knowledge that you could be bumped out at any time.
Alternately, Amazon could lease time at an hourly rate which varies with available capacity; just raise the hourly rates around Christmas because you need them for your e-commerce site.
I know what spot pricing is. I work at AWS in Professional Services. AWS was always built from the ground up as a separate service. Amazon Retail is still migrating some of their infrastructure to AWS.
It would be slightly inconvenient if customers needed more capacity at the same time that Amazon Retail needed more capacity.
Growing through acquisitions is not limited to Big Tech. Almost every big company has an endless list of acquisitions. Berkshire Hathaway is a conglomerate of acquired businesses. All big banks were results of M&A. Same with the oil companies.
The article seems to overlook that they also got big by going on insane profit-fueled hiring binges. Or at least I didn't find it skimming through that awful format.
Tens of thousands of engineers, at salaries that make other companies turn green with envy, churning out products and features and supporting infra at an unprecedented rate. Then the cycle repeats. I think that counts for something too.
ty for the link. i love how the source only shows the url for a second before replacing it with the root domain to prevent people like me from copy/pasting the story url into an incognito tab
>I'm always surprised that FAANG - or Big 4, excludes Microsoft...
Because the original context in 2013 of Jim Cramer popularizing "FANG" / "FAANG" was growth and even though Microsoft was already one of the biggest tech companies, their stock price wasn't really growing like the newer FANG.
Others later tried to revise the acronym to include Microsoft with variations like FANGAM -- but it doesn't seem to gain any popularity in internet discussions or mainstream media.
Are you talking about recently or circa 2013 when Cramer popularized his FANG acronym? Before 2014, MSFT growth didn't compare to the newer web dominant companies like Facebook/Amazon/Netflix/Google. He also left out other giant tech companies with lower growth like IBM, Oracle, SAP, Yahoo!, Hewlett-Packard, etc.
I think Microsoft likes it that way. It's a little thing, but it's just one more little piece that helps them go unmentioned in most of the culture war bomb-throwing about Big Tech.
There is an enormous difference in how expensive capital is at the startup level vs public company level.
Startups have to convince Angel investors $25k at a time to invest in their startup through a long and laborious sales process. Publicly traded companies just have to issue stock and the market just pays for it out of millions of people's dividend reinvesting 401k plans.
The difference also comes into play in real estate. Putting together the money to do a multi-family apartment building takes lots of talking to banks, personal guarantees, developing relationships over decades with other investors, not hitting a bad market cycle, etc. Once a property becomes worth about $50 million dollars, usually due to a growing economy in the area or the neighborhood becoming more valuable, a REIT will come in and buy it like it's nothing. That's because the REITs have all that public market money to play around with that they get for a much lower cost of capital. The REIT doesn't even have to run it that well because their cost of capital is so low that the profitability requirements for the project are much less. Same thing goes for big tech which has bought hundreds of startups and shut them down or run them poorly.
This a point that is missed by the people who still say the the big tech companies got there "by merit and by the choice of consumers". Most big tech had a single idea, and then used the money to buy others who could pose a threat. So in effect the consumer has little choice. For example, consumers didn't have a choice in selecting Google to watch video, they had to accept the fact that Google bought Youtube.
Hmm, but by the time Google could afford to buy YouTube, they were already very popular and had a well liked search product. Ask Jeeves didn’t buy YouTube.
This is along my initial-not-fully-formulated thought process. Majority of business doing the acquiring are still primarily in the business of what allowed them to do the acquiring. There’s only a few I can think of where the acquisition is a meaningful/noteworthy part of their current business. I don’t necessarily feel like valid competition was squashed in most cases. Following tech M&A headlines has led me to feel mostly it’s acquihiring and the underlying product has no value to the acquirer.
> High-Tech Employee Antitrust Litigation is a 2010 United States Department of Justice (DOJ) antitrust action and a 2013 civil class action against several Silicon Valley companies for alleged "no cold call" agreements which restrained the recruitment of high-tech employees.
> The defendants are Adobe, Apple Inc., Google, Intel, Intuit, Pixar, Lucasfilm and eBay, all high-technology companies with a principal place of business in the San Francisco–Silicon Valley area of California.
> The civil class action was filed by five plaintiffs, one of whom has died; it accused the tech companies of collusion between 2005 and 2009 to refrain from recruiting each other's employees.
Gov't is going to try and break the big ones up, and stop M&A's as anti-trust sentiment warms up. Startups will become much, much harder to benefit from. The cost of capital is going to go up and make it harder to fund-raise, and people will get much more judicious about what they invest in. If your company isn't tied to some other industry or sector of the economy and is a tech company, just consider if your business can survive on its own for the next 3 - 5 years.
Such "analyses" simply appeal to our ape brain centers that trigger envy and seek easy explanation for complex phenomena. "How did they get big?" Oh, it's just acquisitions and the law! Nothing that a savior in the House/Senate can't fix.
I am sure acquisitions played a part. But failing to admit that those companies and their leadership did many things the right way is a very one sided view of what has actually happened.
Big-time survivorship bias in this article and thread. Just yesterday we learned that Verizon is dumping Yahoo and the related media brands. Those acquisitions were a major failure.
The reason that Big Tech got so big is that they're really really good at growing their high-margin core business and have a ton of free cash flow. That's really all it is.
I always thought that a tech company buying another tech company was the strangest thing: if another company makes software, and you make software, and you want software that does what that other company's software does... why not just write new software to do that? But, clearly, these guys know something I don't know.
1. You want to acquire the existing users of their software.
2. Buying them essentially stops progress on your competition. Let's say you don't buy them and instead decide to write your own software that does what theirs does. Maybe it takes you a year to write a program that does everything theirs does today. In that year, they've also made a bunch of progress, so you're still behind. If you have enough resources, you may be able to catch up and overtake, but they have the advantages of greater expertise, userbase, and lead time. Because of those advantages, it's often cheaper to buy them.
In general, companies don't like to compete. Competition is spending resources to simply cancel out the expenditure of your competitor. Zero-sum games like that don't make you richer. Companies naturally prefer to be monopolies, or at the very least cabals. That way they can fully exploit their product area and can control prices as much as they want.
I think that this is a very reasonable observation. It's definitely weird in theory, but the reasons that I've seen are:
* Very large tech companies build software (relatively) slowly due to their size
* Sort of like a toddler, you don't know what you want until you see that someone else has it. Another company hitting product/market fit + traction proves the value of a product that you might have just hypothetically wanted
* You're often buying a go-to-market motion (marketing, sales, services, etc) that complements a product
* In some cases, you're buying talent that would be difficult to hire + train on your own _fast_. Ie even if you could theoretically hire 50 traffic mapping engineers, you can get them onboarded onto your team faster by acquiring Waze
I'm sure there's some accounting wizardry that helps make this viable, but it could just be the optimal strategy if a Big Tech company has a warchest of cash, but knows some of it could be hemorrhaged by taxes (or the costs related to transferring funds) if it isn't spent. $20 million to acquire a development team for a few new features may seem like a lot, but it is a more surefire thing than spending $10 million to hire, design, and build a competitor.
I think it's disingenuous to say that Amazon acquired cloud computing companies as a new line of business. They built that unit in house and were well established before they started buying related companies. Those acquisitions should be on the "core business" side of the graph.
For those wondering how big “Big Tech” companies are, I compiled a spreadsheet of over 600 products and services that illustrates the scope of their offering.
Investing in psychological research to make their product more addictive, practically buying legislation to further profitable abuses of labor, the list goes on.
one thing everyone keeps forgetting about is mindshare and talent monopoly these companies have.
bunch of startups using react, k8s because FB etc use them. how is this bad, well you they can change API's or introduce new features into these tools.
Forcing companies who're using these tools to play catch up. instead of developing features.
plenty of smart engineers that would be founders are reduced to being cogs in a system. countless examples even here on HN where people question, why work on something interesting eg in the Lichess thread instead of FAANG and get the massive salary.
to me that's the most dangerous form of monopoly there could be.
Mergers & Acquisitions are a foundational part of building any major conglomerate or corporation. Every industry does it. Energy, Media, Technology, Healthcare, Finance, Food, Clothing, whatever. Big Anything can be measured by this, but the sheer number of them does not mean as much as how much of the market they suck up through each one.
The unstated end goal of every capitalist organization is to become a monopoly. Do people just not want to acknowledge this? Because that's kind of what every decision of competing corporations is always leading towards. You can't gain infinite capital unless you are always absorbing or eliminating more of the competition. The whole point of competition is not co-existence, it's domination.
The WP is one of the most highly respected newspapers in the world. Extraordinary claims require extraordinary evidence. Please provide your extraordinary evidence.
This is the inevitability of capitalism. It has no built-in control for a company that becomes too big to the point of being a detriment to society.
In my mind there are only three kinds or tech companies:
1. Growing fast enough to eventually become huge and irreplaceable, losing money all along the way. When they are too big to fail, they flip the switches and de-invest and cost-cut to profit indefinitely (Uber and Lyft)
2. Attempting to just run a sustainable business, which translates to languishing and eventually being replaced or acquired by companies in category #3 or #1 (Tile, Pebble)
3. Giants that deserve antitrust attention but never seem to get any because they buy out the government (Google, Apple, Facebook)
That’s why there’s no room for companies that won’t surrender to venture capital. Just making a profitable product isn’t enough, they have to surrender their autonomy to people who have no expertise or innovative tendencies besides having a bigger bank account.
Yes, capital has a tendency to concentrate and centralize.
A 19th century philosopher summed [0] this phenomenon of the concentration and centralization of capital:
Capital grows in one place to a huge mass in a single hand, because it has in another place been lost by many.... The battle of competition is fought by cheapening of commodities. The cheapness of commodities demands, caeteris paribus, on the productiveness of labour, and this again on the scale of production. Therefore, the larger capitals beat the smaller. It will further be remembered that, with the development of the capitalist mode of production, there is an increase in the minimum amount of individual capital necessary to carry on a business under its normal conditions. The smaller capitals, therefore, crowd into spheres of production which Modern Industry has only sporadically or incompletely got hold of. Here competition rages.... It always ends in the ruin of many small capitalists, whose capitals partly pass into the hands of their conquerors, partly vanish.
To me it feels like this is the opposite of capitalism. The free flow of capital is impeded by monopolies amassing huge fortunes. Just like a clogged pipe, the free flow is then blocked and regulated by such forces. Not ideal for the overall market.
> It has no built-in control for a company that becomes too big to the point of being a detriment to society.
That's verifiably untrue. One of the key traits of capitalism is that businesses are allowed to fail, and we see that they do fail. 30 years ago, the retail and supply chain behemoth was Sears; today that's Amazon; 30 years from now, it might be someone else.
Berkshire Hathaway recently remarked on the dynamism as seen in the top 20 companies in the world in 1990 vs today.
The linked twit simply shows top 20 largest companies by market cap in 1990 vs today. That's a fact. If you want to argue that the particular fact is somehow misleading or misrepresenting, please put an argument with an evidence - without that, this falls into the "attacking the motive" fallacy.
"You're probably reading this on a browser built by Apple or Google."
Nope. Guess again.
"If you're on a smartphone, it's almost certain those two companies built the operating system."
Not using a "phone" either.
"You probably arrived from a link posted on Apple News, Google News or a social media site like Facebook."
Nope.
"And when this page loaded, it, like many others on the Internet, connected to one of Amazon's ubiquitous data centers."
Nope. Using customised text-only browser with prefetch disabled and no suppport for autoloading resources. Browser fetches the page from archive.org instead of AWS thanks to the loopback-bound forward proxy configs I wrote.
Clearly those opening statements by the four authors were just assumptions. Tired ones at that. Not the most creative way to open an article about what is for many of us an old topic.
The point here is that none of the "technology" developed by the "talented engineers" assumed by the authors as the driving force behind the article's subject "tech" companies was (in theory if not in practice) necessary for me to read the same article as everyone else, without any of the tracking or negative baggage that comes with companies like Apple, Google or Amazon nor the economic havoc in which they are content to thrive.
Choices matter.^1 Tech companies want to (effectively if not intentionally) remove as much choice as possible.
They have been very successful at this, through acquisitions and other means, to the point where people can write articles that begin with blind assumptions about what software readers are using.
I don't think they got big through acquisitions. They simply got big due to first mover advantages, favorable sentiment among investors (which gives them lots of capital), network effects that prevent competition, massive patent portfolios (which let them copy smaller company's innovations without consequence), running around regulations (like avoiding sales taxes in US for a long time, or avoiding taxes in Europe), and so on.
Yes, there are some acquisitions that added a lot to these companies and took away competition (YouTube, Instagram, Doubleclick, etc.). But the majority of the market share in these companies is not driven by just those pieces. The reality is that we do not have sufficiently modern anti-trust laws to capture the ways in which these companies hurt customers. It doesn't take a 90% market share in some segment or explicit abuse of market position to create harm. Their mere existence is enough, soaking up talent from the market, creating massive centralization of power and influence, and so on. I'm not sure what the best way to address this is, but rather than wasting time proving consumer harm, I think it's better to just treat giant companies differently to limit their size and growth - perhaps graduated corporate income taxes, or automatic splitting up above a certain market cap, or whatever else.
> They simply got big due to first mover advantages,
Neither facebook nor google were first movers. They actually joined the game at a tome when there were established competitors.
But they beat them with a much better execution (and other key ingredients such as those you mentioned) which markets rewarded. Then they started buying off possible threats, effectively blocking late starters as they themselves were, to the point where they became monopolies and, frankly, a nuisance to customers and society.
Right after deregulation, there are new entrants. Twenty years later, there are a very few giant companies. See telecom, airlines, etc.