MONOPOLIES DON’T LAST: Monopolies don’t last. 1904:
Rockefeller’s Standard Oil controls 91% of the US Oil Market. 2004: Standard Oil is just something
that we read about in the history books. 2000: GE becomes the world’s largest company.
2021: GE announces that they’ll be divesting into 3 different companies. 2007:
Nokia is synonymous with cell phones. 2023: Nokia is the legacy company with the iconic ringtone.
2015: Apple, Google, Amazon, and Meta rule the world.
2045? 2060? When is their expiration? These companies may seem unstoppable, unbreakable today
but there’s only one thing for certain, each and every one of these companies will fail. In fact,
the bigger they get, the faster they’ll fall. You probabaly asking how. I mean,
no ones ever gonna stop using smart phones or the internet right? Well, that’s just because we don’t
yet know what’s next. Henry Ford once famously said “If I had asked people what they wanted,
they would have said faster horses.” Today, horse drawn carriages are virtually obsolete. So,
here’s why all monopolies are doomed to fail and why big tech has already started their demise.
PHASE 1: DYING FLAME: People love to hate on monopolies but they
often forget that it wasn’t that long ago that the very same companies were cherished. You see,
companies don’t just randomly become monopolies because they had better marketing or something.
Companies become monopolies because they offered something that was undeniably better
than everything else. Standard Oil offered an undeniably better way for energy production and
transportation. AT&T offered an undeniably better way to communicate. And modern tech companies
started off by offering an undeniably better way to navigate the internet. Amazon mastered online
shopping, Apple mastered handheld devices, Google mastered advertising, and Facebook mastered online
communication. So, ironically, the first stage of a monopoly is actually love. All monopolies
were loved by most of its user base at some point in time. That’s how they became a monopoly. But,
this love also gives companies a lot of control, allowing them to do things that most companies
wouldn’t be able to get away with. Apple, for example, was able to drop the headphone jack,
prevent consumers from repairing their devices, and even remove the power brick. Yet, they’re
still the biggest company in the world because people love iPhones. Such anti consumer moves
are usually what raise the first red flags that a given company is actually just a monopoly. But,
by this point, the company already has control over the market and they shift their focus to
building an empire. During this stage, companies can basically throw out anything they want and
it’ll stick. Likely the best example of this was Microsoft back in the 90s and 2000s. Windows and
Office were actually phenomenal products that people loved. Internet Explorer on the other hand
was not but that didn’t matter because Microsoft was able to push IE using Windows. The same thing
could be said about Hotmail, Outlook, and the MSN suite of products. The same thing could be
said about Google and Apple throughout the 2010s. People started using Google Drive because they
already had Gmail accounts. People started using Google Photoes because they were already using
Android. Similarly with Apple, people started using iCloud, Apple Music, Safari, and Apple
Maps because it came along with iPhones. This isn’t to say that these products were bad, but
they weren’t especially stellar either. I mean, let’s just be honest, who’s gonna use Apple Maps
or Safari or the Apple Mail Client if it wasn’t for iPhones. The answer is no one and this is
really the trademark of an aged monopoly. People use their newer products not because they were
extraordinary but because they were associated with something that was extraordinary. Piggy
backing mediocre products off of extraordinary products only works for so long though.
PHASE 2: INEFFICIENCY BUILDS:
The beginning of the end for most monopolies is actually just themselves. As monopolies
grow more powerful, we start to see a clear disconnect between the company’s original
purpose and vision and the goals and vision of the company's employees. I mean just think about it,
what type of person joins a monopoly? Well, it’s usually someone with the mindset of “If you can’t
beat em, you might as well join em.” And I don’t blame these people whatsoever. They’re
simply looking out for themselves as they should be, but this doesn’t exactly play out well for
the organization. Suddenly, the primary goal of the average employee is no longer to serve the
customer in the best way possible. In fact, the average employee might not even know how their
role impacts the customer as there’s simply so many layers between them and the final product.
So, the primary goal of employees transitions to impressing their managers, getting promotions,
and scoring bonuses. This is how it becomes across the entire corporate ladder. And as for the top,
well the top isn’t any better. Most of the visionary executives have likely already retired,
moved onto something else, or have just passed away. So, the people who left aren’t visionaries,
they’re the ones that were able to play the corporate game the best. They were able to handle
office politics, and backstabbling, and crappy managers, and ineffective teams and whatever else.
These people aren’t exactly leaders. A better description would be survivors similar to winning
the Hunger Games or something. And given that this is what they’ve been used to their entire
career, as executives, they’re gonna focus on survival. How do they survive at the top? Well,
it’s not by serving the customers, it’s by serving the shareholders. The top two things
that shareholders are looking for is growth and profit and thus the priorities of the company also
becomes growth and profit. And what’s the easiest ways to do this? Well, the easiest ways are to cut
costs and increase prices. A perfect example of this is Google. With Larry Page and Sergey
Brin and the helm, the focus of the company was to push the boundaries and experiment. In fact,
Google was always super proud of all their failures of which they had hundreds. Their
philosophy was always you’re gonna have to fail a bunch before you succeed. But, I’m not sure
if we can say the same thing about Sundar’s Google. Over the past several months itself,
Google has been pulling back on Moonshot ideas substantially. In fact, in some areas,
they’ve cancelled as many as half of their projects. It’s easy to say they’re pulling
back because of the recession but it’s not like Google or Facebook or really any big tech company
that’s doing layoffs are actually at risk. They’re not even remotely close to being unprofitable.
For giants, recessions are simply a time to maximize efficiency so that they can become
even more profitable for the next bull run. But by the time the desire to maximize short
term profits becomes larger than the desire to create long term change, the end is near.
PHASE 3: THE WEAK LINK:
Monopoly is really quite a fitting name for these companies because most modern monopolies
are dependent on just 1 product. It might seem like they’re everywhere with their hundreds of
products and services, but really, the base of the company can usually be traced back to just
one product. To this day, Google Search accounts for over 50% of all of Google’s
revenue. iPhones account for over 50% of all of Apple’s revenue. The only reason Amazon is even
profitable is because of AWS. And the entire business of Meta can be summed up by Facebook,
WhatsApp, and Instagram. The only tech giant that breaks this trend is Microsoft. They’ve become
more of a tech holding company than an actual business which seems to be working out great
so far but we’ll have to see how it plays out over the long term. As for everyone else though,
their empires are actually extremely fragile. The reality is that while they may have hundreds of
micro services that generate a bunch of revenue, the only reason that any of these services are
successful is because of the base product. iCloud for example has nearly a billion users but how
many people would stick around after the iPhone is disrupted? Similarly, how many people would
even know about the Metaverse if it wasn’t for Facebook? The reality is that the only reason
these extensions are successful or even relevant is because of the success of the original product.
Once that fades away, so does the entire company. This isn’t to say that the company goes bankrupt
the day after or something. Rather, they become a shell of their former self similar to IBM or
AT&T or GE. They might be everywhere but at same time they’re nowhere because the brand no longer
carries the same weight. Take ChatGPT for example. Let’s say ChatGPT replaces Google search which it
might very well do. As the masses flock over to ChatGPT, people will naturally start using the
products that are associated with ChatGPT vs the products that are associated with Google.
Given that Microsoft is a major investor in ChatGPT, this means that a lot more people
will start using Edge, Bing, Outlook, OneDrive, and Microsoft Office. Suddenly, Google’s major
product categories of Chrome, Gmail, Google Drive, and Google Office aren’t nearly as popular despite
nothing changing about them. The bottomline is that the hero product changed and with that,
all of the auxiliary products also changed. So, as you can see, most of these big tech
companies aren’t as invincible as they may seem. While they may have hundreds or even
thousands of popular services, it’s only a handful of products that really drive people
to the ecosystem. Once those products fall out of favor, so those the entire company.
THE STATE OF FAANG: Looking at FAANG today, it’s clear that
they’re well past stage 1 of being a monopoly. The days of people loving them were 15 to 20 years
ago. Nowadays, the sentiment that dominates is actually concerns. Concerns about their power and
influence, concerns about privacy, concerns about anti consumer behavior. Most of these guys are
also well past stage 2 as well. They’ve already leveraged their marketshare to push other products
and services and become omnipresent. Their focus is no longer to improve the world but to maximize
stock growth. This is why they spend so much money on stock buybacks. Apple for example has spent
$573 billion on buybacks over the past 10 years. I’ve said this before but that’s literally enough
money to buyout another fortune 10 company. Such behavior is only evident in a late stage company.
If this was 2007, Apple would’ve been way too busy with scaling manufacturing, logistics, and R&D to
be spending half a trillion on buybacks. But, this all brings up the question: how much time to these
companies have left? Well, for that, we can just take it from the horse’s mouth itself: Jeff Bezos.
Looking around, big tech companies are rapidly approaching this milestone. Amazon is 29 years
old. Google is 25 years old. Facebook is 19 years old. And Apple is 47 years old. But, they were
completely reinvented with the iPod and iPhone so the modern Apple is more like 20 years old.
So, it’s likely that the utter dominance of these companies is already behind us.
Again, this isn’t to say that these companies will go bankrupt tomorrow. But,
they have already started transition into becoming the Ciscos and Intels of the world. And once they
spend a good amount of time there, they’ll become the Xeroxs and Kodaks of the world and
that is the inevitable future of FAANG. Clearly, things aren’t looking too great for big tech but
likely the one exception is Microsoft. If you’re wondering why, check out this video.