THE FALL OF IBM: On August 12, 1981, IBM would hold one of
the most influential product unveilings of all time: the unveiling of the IBM PC.
PCs were very much already a thing but IBM would take the industry to a whole nother
level.
They were the ones that kicked off the mainstream adoption of computers.
In fact, within just the first year, the IBM PC would sell 200,000 units and generate over
$1 billion in revenue, far exceeding even IBM’s own expectations.
And things only got crazier from there.
By the second year, IBM was shipping 200,000 PCs every single month.
Seeing that I don’t think you’d be surprised to hear that brands that were already making
PCs like Apple and Tandy Corp would very much fall to the sidelines.
But this absolute domination of the computer industry didn’t last forever; in fact, it
didn’t last long at all.
By the late 1980s, IBM would face a slew of knockoffs from HP, Dell, Compaq, and Lenovo.
And within just 10 years, they would go from being the market leader to being a market
laggard.
And within just another 10 years, they would go from being a market laggard to being bought
out by the competition.
For the general public, this was very much the end of IBM as they knew it but 20 years
later, IBM is still massive.
Even after cutting their workforce for a full decade, IBM employs nearly 300,000 people.
They also pull in $60 billion worth of revenue, $7 billion worth of profit, and they’re
still a Fortune 100 company thats worth $148 billion.
But while they have been able to hang on to their money, the same cannot be said about
their position within the market.
IBM is very much a shell of their former selves who derive almost all of their revenue from
legacy background connections.
A rather sad fate for someone who was at one point at the forefront of technological development.
But the more you look at it, the more it seems that this was just a natural evolution that
awaits all tech companies.
In fact, it seems that FAANG is already undergoing this transformation.
So, here’s the IBM-ification of FAANG.
DEGRADING TALENT: Likely one of the most tell tale signs of
a company going down that IBM path is their workforce.
Historically, FAANG companies have boasted some of the smartest minds in tech.
With their small nimble workforces, they were able to handpick each and every employee.
In fact, at Google, Larry Page and Sergey Brin themselves interviewed every single candidate
that was actually hired up until the company was tens of billions.
Sundar was actually one of the first hires that weren’t personally interviewed by Larry
or Sergey.
I’m sure this was a very time intensive process but it also ensured that these companies
had unparalleled levels of talent.
The only problem with this strategy though is that it doesn’t exactly scale all that
well.
Maybe you could leverage this strategy up until you had 1000s of employees or even 10
to 20,000 employees.
But after that, quality definitely takes a hit and that’s exactly what’s been happening
at FAANG over the past 10 years as these companies scaled to hundreds of thousands of employees.
Google scaled from 30,000 to 190,000.
Meta scaled from 3,000 to 86,000.
And Amazon scaled from 100,000 to 1.6 million.
Now, all of these companies still have a bunch of super stars but they’re increasingly
becoming the minority for a couple reasons.
The most apparent factor is obivously the challenge of maintaining hiring quality at
these insane scales but there’s a lot more to it.
For example, FAANG companies today are attracting a completely different demographic of people.
Back in the day, these companies primarily appealed to tech and product enthusiasts who
were truly excited about bringing the newest creations to market.
Today, these companies primarily appeal to people who are looking for job security, high
income, and status.
And it’s not like you can blame these people either.
They’re simply looking out for themselves as they should be, but it’s not all that
great from the companies’ perspective.
And it’s not like they can really change this reality either.
The fundamental problem is that big tech is already big tech.
They already have a bunch of established software and services with billions of users each.
So, the vast majority of their manpower simply goes into maintaining and refining these services
as opposed to building new services from scratch.
As such, people who are interested in building products from the ground up are naturally
drawn to smaller companies where they can play larger role.
And the candidates that big tech is left with is not necessarily people who are unqualified
untalented but people are largely looking out for themselves.
The reason they’re joining Google is not because they can’t wait to optimize Google
TV’s recommendation algorithm, but so that they can put Google on their resume and leverage
the brand 4-5 years down the line when they’re looking for a new job or promotion.
The 1000s of articles and courses out there about how to crack a FAANG job interview is
the most obvious evidence of this trend.
The biggest emphasis for a lot of applicants nowadays is to just play the job interview
game and break in, not actually excel at the job after they make it.
This sort of mindset not only slows down forward progress at these companies but often leads
to backward steps which brings us into the rapid bureaucratization of big tech.
INESCAPABLE BUREAUCRATIZATION: It’s no secret that big tech is being bogged
down by bureaucracy.
In fact, leaked internal documents confirm that these companies are well aware of the
issue, but knowing about the issue and solving it are two completely different things because
bureaucracy is basically baked into these company’s DNA’s at this point.
Take corporate hierarchy for example.
Historically, these companies have prided thsmelves over running a very flat organization.
In fact, at one point, Larry Page even fired all managers so that there would be no layers
of management between engineers and himself.
But, it’s a completely different story at these companies today.
Not only do they have the standard management layers, but they have way more.
At traditional companies, you first have your laboreres.
You know, software engineers, web developers, and hardware engineers.
On top of this, you have managers, directors, VPs, and then the C suite.
Now, you wanna guess how many layers of management Google has?
Well, they’ve got Manager I, Manager II, Manager III, Senior Manager, Staff Manager,
Senior Staff Manager, Director, Senior Director, Vice President, Senior Vice President, a C
suite for the sector, and finally the C suite for the entire company.
Aka, if you’re an entry level manager at Google, there’s 10 levels of management
between you and Sundar atleast.
And that’s just on the management side of things.
All of these companies have a wholenother hierarchy for the engineering side of things.
At Google, you’ve got interns, Engineer II, Engineer III, Senior Engineer, Staff Engineer,
Senior Staff Engineer, Principal Engineer, Distinguished Engineer, and Google Fellow.
With this much hierarchy for every discipline within the company, it’s no wonder why things
are being bogged down at these companies.
If you wanna have any sort of senior position at these companies, so much of your focus
has to be on playing the game and climbing the corporate ladder as opposed to just doing
great work and being rewarded for it.
According to a Google veteran who worked there for 13 years, Google has become slime mold
internally, taking weeks and months to even complete the simplest of tasks.
And all of this has only been made worse by Google’s own antics.
If you didn’t know, Google has been leveraging sneaky ways to cut total compensation.
I have a full video about it if you’re interested but essentially, Google has been changing
up their stock vesting schedule to make their job offers seem better than the truly are.
Google has also started tracking employee badges to enforce working hours.
They’ve been offshoring more jobs than ever.
And their cutting down on the amenities that were once iconics of their work cultures.
I’m not saying that any of these moves are particularly bad.
Oh no, Google employees actually have to show up at the office now and they don’t get
free massages, that must be so hard.
No of course now.
It’s only natural for companies to want to minimize on compensation and maximize on
productivity, and that’s what all of these new policies are aiming to accomplish.
But, with that being said, companies usually don’t focus on internal efficiencies until
they’ve nearly tapped out on external growth opportunities which brings us into the question
of where does FAANG go from here?
THE IBM-IFICATION OF FAANG: The IBM-ification of FAANG was largely kicked
off by Microsoft.
For nearly a decade at this point, they’ve basically given up on the whole trying to
create the next big thing effort.
Instead, they far prefer to just focus on their boring but very lucrative enterprise
business.
They just take profits from there and bet it on promising consumer businesses like OpenAI
or Activision Blizzard.
If these work great, if they don’t whatever.
They still got their cash cow enterprise business and they just needed the exposure in case
these did work.
And it seems that most FAANG companies are following in Microsoft’s footsteps in their
own ways.
Google has largely pulled back on their moonshot ideas and is instead betting heavily on the
cloud and trying to become a stable giant like Azure and AWS.
Similarly, Apple has largely pulled back on ground breaking iPhone upgrades and is instead
focusing on becoming a stable services giant.
Netflix has largely pulled back on trying to maximize user growth and instead maximize
on revenue per user.
And as for Amazon, well, they haven’t been dependent on retail revenue for a long long
time at this point.
In fact, the only reason Amazon is even a trillion dollar company in the first place
is because of AWS.
The only big tech company that’s bucking this trend and still trying to create the
next big thing is Meta who has been betting big with the Metaverse, their own language
model, and most recently Threads.
But aside from Meta, it appears that big tech is for the first time craving something other
than growth: stability.
They’ve already experienced phenomenal growth over the past 20 to 30 years and as things
are starting slow down, a lot of them are preferring to diversify and lock in the gains
that they already have instead of going for the next big milestone.
As these companies go down this path, it’s likely that they’ll fade into the background
from the consumer perspective.
It’s not that people will stop using their products but rather that it just becomes a
subconscious choice.
For example, no one is particularly hyped about AT&T or Spectrum even though they supply
the entire country with internet.
They’re more just background companies that no one really bats an eye about.
And it’s likely that a similar fate lay ahead for FAANG.
Google is just what you use to access and navigate the internet.
Facebook is just what you use to access and navigate social media.
And Apple is just where you go when your phone breaks or becomes slow and you need a new
one.
In the meantime, these companies will likely just be filled with more and more MBA businessmen
and corporate ladder climbers who really do nothing but push the stock price forward.
Their strategy of maximizing efficiency will only take these companies so far though, and
sooner or later, these companies will begin their slow and painful demise.
This is very much a slow process that takes decades though, so these companies still have
quite a bit of time at the top.
But their 1980s IBM days are very much behind them and all that’s left is to become the
new legacy tech giants of the next generation, and that is the sad fate of big tech.
Who do you think will become the new FAANG?
Comment that down below.
Also, check out this video if you would like to learn about how big tech is secretly nerfing
salaries big time.