Two decades ago, the internet kickstarted a new innovation cycle by empowering each individual or entity with the ability to reinvent business models. And some businesses have benefitted more than anyone else, combined.
NY Times published an article in November 2019 about how Big Tech have relied on each other, despite their rivalries, maintaining their competitive edge in the industries or verticals they operate in. The interdependence of the biggest tech companies is like a labyrinth of cobwebs, a never-ending collection of interconnectedness. For instance, Netflix outsources all its storage and computational needs to Amazon (AWS), its biggest competitor in video-streaming. Google pays Apple almost $8bn-$12bn to let Google be the default search engine in Iphones. Tik-Tok spent hundreds of millions of dollars in advertising on Google and Facebooks ads to acquire users and reach the scale it is at right now, despite Google (Youtube) and Facebook (Instagram) being its biggest rivals. These relationships have attracted a ton of lawsuits recently from anti-trust authorities and competitors who were left behind.
Can Big Tech live without each other?
It is surely going to try. Apple has developed an in-house search engine for iPhones, which according to the company has been a long time in the making. Some users who reviewed iOS 14 noticed the search functionality on iPhones displaying Apple’s search results on top (and not Google’s). After relying on Intel for years (and contributing to 5% of the latter’s 78bn revenue), Apple has decided it would be designing its own ARM based M1 chips for Mac PC’s and laptops for better battery life and performance. Microsoft too would move away from Intel’s microprocessors that power its data centers and surface laptops and design its own. This is DIY – the Big Tech way.
After years of relying on each other and establishing insurmountable empires, are we going to witness a reversion to the mean in this decade? And should the biggest technology companies in the world transition away from each other entirely and be independent?
The popular opinion seems to be inclined towards an affirmative. This is seen as one of the solutions to make the internet an ‘open-for-all’ resource from a gated community it has turned into. I believe Big Tech has got here by attracting some of the world’s best talent, finding solutions to the hardest of problems and executing them to perfection. These are some of the best run businesses of the world (at least their shareholders would agree to that) with an even more impressive track record of capital and resource allocation. And they play the long-game incredibly well. Maybe this evolves into a ‘Bigger’ tech scenario where each firm has in-house everything, working like units feeding off each other and getting better with every single iteration. Possible second-third order effects could be intense competitive landscape with a lot more winners and losers. No barrier to entry, no moat is big enough to keep the Big Tech out. AAPL has already announced its ambitions to enter the EV space with its own battery technology while AMZN also acquired Zoox, an autonomous EV manufacturing startup, this year. Oh well. We might end up with more differentiated products and services in each technology vertical. Win-win.
Looks quite promising, the decade. See you in 2021!
The Atomic Investor