The second part of my quick drive through the tech dominated technological-industrial complex of present day USA
The huge growth in the value of the Big Tech 5 in the USA has been a combination of factors. The favourable economic environment in the years since the Global Financial Crisis of 2008 and low interest rates. The advance of globalization in trade (albeit somewhat curtailed since the Trump Trade Wars commenced). Innovation in technology, computing, materials, manufacturing, these have all aided the growth in their valuations, but is that all?
What is also true is that these groups have used their new found financial muscle to good effect by the use of cheap labour and rapid logistics, to gobble up competition cheaply, to absorb patents & talent into their organisations and to set trends rather than simply follow them.
And for companies that have built their fortunes and reputations on the application of intellectual capital and the provision of services, rather than factories and physical assets, makes the financial markets determination of the seemingly mindbogglingly huge valuations somewhat questionable. However, it is said that something is only worth what someone will pay for it and all these groups are publicly listed so presumably the share price is driven by a degree of belief in the companies and their future prospects. Could it be that they are over-hyped, guilty of believing their own press?
So let's take a quick spin through who actually owns what with special reference to significant acquisitions or milestones in each company's development, in no particular order...
Best known for it's pioneering software development, operating systems and associated programmes, Windows, Word, Office, Excel, Visio etc and this remains a mainstay of the company's business.
The other significant component is Azure cloud computing, data storage (always a concern!).
Additionally, Microsoft has a brick & mortar mini-empire in Microsoft Store and had an eponymously named Mobile division for a while, however, this move away from it's core competencies hasn't flourished. The acquisition of Nokia's handset business was bought for $7.6 bn in 2013 has since been largely written down and broken up.
Similarly, in 2007 Microsoft bought Aquantive, an emerging ad-tech company for $6.3 bn...again this was largely written off over the succeeding years.
For gamers, Microsoft Xbox feels like it has been around for a millions years and is frequently refreshed. Microsoft also acquired Mojang, the creator of Minecraft in 2014 for $2.5 bn.
Bing was (and still is) an attempt to move into the search engine arena, again seen as an 'also ran!'
Vuze was a foray into mobile music delivery with a challenger to MP3 players, never easy being second to market!
Connect is a motion control system for games etc which requires no console.
Two very sizable acquisitions came in the form of Skype, the internet phone service company, in 2011 for $8.5 bn and LinkedIn (Facebook for grown ups) in 2016 for $26.5 bn. Both bought large networks into the fold but the premium paid has been questioned ever since.
Microsoft has and is working on various large military contracts including a $500 mn project to create a VR headset for combat troops and the controversial Pentagon data management contract worth $10 bn which it won after the President supposedly intervened and had the front runner, Amazon, disqualified!
Microsoft is good at what it does best, it's attempt to extend beyond that have been less than spectacular.
Founded as the holding company for all things Google, Alphabet was founded in 2016 and as of December 2016, it had acquired over 200 companies:
CEO Larry Page has explained that potential acquisition candidates must pass a sort of "toothbrush test": Are their products potentially useful once or twice a day, and do they improve your life?
And there development divisions, for example, Loon (space travel) or Waymo (self driving automobiles) must have a x10 impact on the world i.e. have a significant return on investment however this isn't entirely driven by financial ratios as with the case of Waymo it is the assertion that road deaths can be reduced by 90% through the application of this technology that sets the standard.
Google are best known as the 'original' search engine company and a lot of it's success is attributed to the fact that people saw them as that and that alone and that this singular focus made them somehow better at being a search engine. That said, there has been significant diversification over the years.
They bought the Motorola Mobility division but handsets and hardware aren't really their 'thing', however, they were responsible for the open-source cell operating system that is Android.
Additionally, they have acquired the household names in Nest (home controls), You Tube, Waze(the route planning app that started out as an Israeli 'unicorn), reCAPTCHA(the intensely annoying 'security' feature on many websites) and very recently FitBit for $2.1bn along with all it's users and their data.
Huge conglomerate with multiple divisions, still largely focused on changing peoples lives, whether they want it or not!
On the 'face' of it, a single product company, Facebook and it's ad revenue have driven this company into the trillionaires club.
Has not been shy to 'splash the cash' when required and paid $19 bn in 2014 to buy the WhatsApp messaging service after having dropped a cool billion on buying Instagram in 2012. Not many people were aware of these being FB owned until in their infinite wisdom they decided to brand them as 'by Facebook', given peoples concerns about Facebook's record on data handling and respect for privacy, this may not have been a great idea!
They also own Occulus VR which they bought for $2bn as well as a Scottish VR audio company called 'Two Big Ears' purchased in 2016 for an undisclosed sum.
Controversy never seems to be far away from Mr Zuckerberg and his cavalier approach to data manipulation/sale etc is only heightened by the size and reach of this colossus.
The oldest of the Tech giants, Amazon started life as a bookstore but rapidly moved online and just kept growing. After it's Q4/19 results were announced it's shares jumped by 12% in 15 minutes yielding a $13 bn growth in the value of the founder's holding in the company.....the world's richest man just got richer!
Part of the recent success has been the growth in Prime, its express delivery service but the old adage about 'no pain, no gain' has been somewhat revised as the pain in this instance has been felt in the malls and main streets of the USA as traditional bricks and mortar retailing has been surpasssed by the impact of the internet and Online Shopping.
Also owns Audible, Kindle and The Book Depository
Launched Bebo, a social media and messenging operation with limited success.
Ring is a doorbell! This home entry system has recently been exposed for shatring data with 3rd parties without appropriate permissions.
Somewhat more successful to date and founded in 2000 is Besos's space exploration company, Blue Origins, which plans to start commercial space tourism flights within the next few years. Amd whilst this could be deemed a vanity project, given his obvious passion for space it does seem genuine. The same cannot be said of his acquisition of the Washington Post which he has consistently used to attack President and government.
In a seemingly unexpected and unusual step, Amazon acquired Wholefoods in 2018 for several billion dollars. The fact that this purchase has been plagued by a clash of corporate cultures has hardly been a surprise.
The world's richest company run by the world's wealthiest man! Enough said!
Steve Jobs....Mac Pcs...iPhones, iPod, iPad etc etc
Acquired Network Innovations in 1988 and has absorbed and purchased it's way to enormity since with Workflow in 2017 the most recent purchase. Along the way it picked up Shazam, the free app that helps users figure out the name of a catchy song being played on the radio, television or other place.
Now run by Tim Apple..according to the President of the USA.
There do appear to be some defining characteristics among these companies and their rise to bigness!
All are led by some genius level intellects but all are now predominantly middle aged, white men and all display a degree of indifference to being held accountable.. All are built around a singular focus around a single idea and that forays 'offscript' have not been overwhelmingly successful. All now seem to have an eye to their legacy, be it by acts of extreme philanthropy or endeavours to 'bravely go where no man has gone before'...and finally, a seeming belief in doing good and the inherent goodness of people!
And whilst they have grown to an size that could well now render them too big to fail as well as too big to control, these giants are now effectively a law unto themselves.
And whilst they are big they are not alone either in the US or further afield.....Twitter, Boeing, Tesla, WeWork, Uber, Airbnb to name a few and then what about Huawei, Sony, Samsung, Alibaba and Tencent?
Why should any of this be of concern? Well, their extreme position has been founded on the instrinsic value of their business and brands and who knows how these can truly be calculated given the etherial nature of these concepts. How about the value of 'real' companies, for example the Berkshire hathaways,the J&Js and the Walmarts of the world that have a physical asset presence?)
The consolidation that the Big Techs have conspired to pursue and the resultant squeeze on competition and new ideas cannot be healthy either...
If you want to create and capture lasting value, look to build a monopoly
by Peter Thiel
All in all, despite the x10 projects and philanthropy, their pursuit of world domination, their partnership with governments, the fact that they are too being to fail or control, their rampant anti trust and the fact that they are never far from controversies, frankly leaves this author worried in the extreme!