The Exponential Five

Here is a German version of this text.

Lately the debate about the dominance and market power of the “Frightful Five”, a term coined by Farhad Manjoo last year as a joint label for the 5 leading tech consumer companies (Apple, Amazon, Facebook, Alphabet/Google, Microsoft), has been intensifying. Pundits are divided along a clear line. On the one side you have the camp of people who are not too concerned. They argue that there is intense competition between those 5 rivals and that, historically, all companies eventually have been outperformed by more agile and more innovative newcomers. History will repeat itself even this time, they say.

The other camp consists of those who worry that notwithstanding the long-term outcome, for the near- and mid-term, the tech juggernauts’s dominance and ability to hoard and evaluate large amounts of data would harm competition and won’t be in the interest of the broader public.

Both sides have valid points. People always have fallen into the “this time is difference” trap, only to realize that it was the same all over again. On the other hand, just because something always has worked along a predictable quasi-law, is that a guarantee for the future? And certainly, in 500 years, all of these companies will have vanished. But what about 100 years? 50? 25? It would be naive to rule out the possibility that Google, Facebook, Apple, Amazon and Microsoft will be around in 25 years with an even much larger footprint than today.

In an exponential age, 25 years are a lot

How much is 25 years? In some way, it is a short time span. 1992 doesn’t feel so far in the past, compared to the history of humanity. In the grand scheme of things, daily life was similar to today. However, if only considering advances in information technology, those 25 years have changed everything. I feel confident to claim that between 1992 and 2017, the global scope of the technological shift has been significantly wider than the one of the previous 25 years, between 1967 and 1992. The reason for that is of course the exponentiality of technological advances. As I have detailed in this post, our times are special because of the breathtaking pace with which new, wide-reaching technologies are being brought to the masses. If you just look at the speed, this time is actually different; every time is different from the previous one in regards to how much time is necessary for technology to progress. Until now, this rule was largely powered by Moore’s Law, while AI and Quantum Computing look to become major accelerators for the years and decades to come. The increasingly shorter adoption rates of new technology reflect this development. When “Mr. Singulary” Ray Kurzweil points out that we won’t experience 100 years of progress during the 21st century, but more like 20.000 years of progress (at today’s rate), he could be wrong about the actual number of years (if they would be measurable), but there is no doubt that he is right about the overall direction.

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Assuming that the pace of technological progress keeps increasing following an exponential curve, then the next 25 years will certainly lead to a lot of more big picture changes than the past 25 ones. It might be just a bit more, but it also might be orders of magnitude more. There is always the chance of “hidden” tipping points which, once being hit, will cause the sudden collapse of established systems. There is a strong case to be made for that we still only have seen the built-up to the real digital age. Our societies, economic and welfare systems and ideological foundations still run on an old operating system, as the author Douglas Rushkoff likes to describe it. All predictions of future disruptions to the establishment of dominating companies need to factor in the peculiarities and systemic effects of a sharp exponential development.

To me, it is unclear whether exponentiality will make it more or less likely for scrappy startups to beat the competition (before being acquired), but it matters and it often seems to be neglected when people bring up the traditional rise and fall of companies in the past. One could actually argue that a company which, like Google, was founded in 1998, in exponential years is not 19 years old, but in regards to its accomplishments already 50 years or even a 100 years old. Seen through that lens, it is actually unusual that the company still exists. And let’s not even talk about Apple and Microsoft (although it took some time for them to acquire the Internet and data DNA which powers today’s exponential growth, so for the purpose of this illustrative example, they are not as suited).

Massive vertical diversification

Apart from the increase in speed of progress, there is something else which differs today from when past giants became victims of the innovator’s dilemma. As Jon Evans puts it in a recent column: “All of the Stacks seem to devote much more of their high-grade brainpower and executive time to spending their money, rather than making it.” (Stacks is yet another term for Alphabet, Apple, Facebook, Amazon and Microsoft). They are spending their resources on moonshot technologies, experiments and services or products that won’t and don’t have to contribute to the bottom line for at least a couple of years. While that won’t guarantee the emergence of new cash cows, trying often increases the chances for success. The fact that all of these companies are doing pretty well while steadily expanding into new areas can be an indicator for that the strategy works. Even Alphabet, formerly known as a one trick pony, now generates 13 % of its revenue from sources other than its advertising business. That doesn’t really count as a diversified revenue portfolio yet but it is getting there.

Clearly, things can go wrong even for these companies. They are not invincible. The probability that all 5 of these protagonists will do great for the next decades is at best a few percentage points. One or two will most likely stumble. But the speed of progress, the centralization of essentially all future products and services around principles of AI and data analysis, and the – historically highly unusual – extreme strategic allocation of profits towards non-core business endeavors among these giants, create an environment which is unlike anything the world has seen before. Therefore, I find concerns about the accumulation of power in the hands of very few companies in a radically exponential age reasonable enough to take them seriously. To just brush them off by pointing to history is, at best, being lazy.

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