Capitalism and Big tech

CAPITALISM AND BIG TECH

Capitalism is the economic system of a country where the industries are privatized and these are a for-profit organization, they don’t operate with the help of tax-payers money. It basically creates a free-market zone, which allows entry of any player so that consumers get a wide gamut of choices with better prices. But what capitalism really meant has eroded over time. The “free market”, now has a high barrier of entry and small players find difficult to sustain against the big ones. Well, we will talk about this today, how financial market leads to the rise of big tech. And how tech companies have switched from the promise of 99% innovation and 1% shareholders to 99% shareholders and 1% innovation. 

The Internet has changed us more than any form of evolution that we went through the last 10,000 years. It is comparable to the time when man first started to roam out of the cage. The amount of information that rushed from his retina to his brain, is fairly comparable to the amount of data that we are now consuming through the internet. The internet now has become a marketable entity and it is filled with opportunities. It has two components, the internet providers and consumers. The consumer base has diversified over the years, more people from different regions are getting online. But on the provider side, it is consolidated. It is like squeezing a wet cloth to get rid of weakly held water (the start-ups and small companies) and letting it dry to get rid of the sticky ones (big tech). But the Sun is not shining on us. The big players like Amazon, Google, Microsoft, Apple and Facebook have combined market capitalisation more than GDP of India (this fact was applicable in good old days, now the later is an unfair performance metric). These companies are now synonymous to the internet.

The Oxford English dictionary should add these words :

1. “Google” (v.) it  -  search something from the World Wide Web 

2. “Microsoft” (n.) - going soft and cooperative, after years of domination

3.  “Apple” (v.) it up - adding a luxury tax to products to drive up the price

4. “Facebook”(v.) me - virtually connect with me (Don’t worry, Facebook will acquire the next big thing in social media, you can safely use this word)

5. “Amazon” (v.) me - feeding extra, even if not required

But I think big tech appears big, and this perception has made them bigger. The financial market has helped them with the narration. These companies decisions are implicitly derived from their shareholders. But this has lead to some good stuff. This helped companies to operate under the low-profit margin and focus on customer satisfaction, like Amazon. It also forced companies to drive up their ESG (Environment, Social and Governance) spending, like on climate change, racial inequality and discrimination. It created a good narration for these companies, and these are real money which can help the activists.

But deep down the rabbit hole, these companies are working for the interest of shareholders, not for the human community. Any decision goes through two gates, first is a shareholder interest and second is the betterment of the society. The C-suites people of the company try to please the shareholders by stock buy-back programmes. Here the company buys back its own stock, now simply the supply of the stock decreases hence the price increases. This money could have been spent on R&D, but it’s not and drives up the price of the stock and the salaries of CEOs. So we see more income inequality in companies. The two examples are IBM and General Electric, which were on the path of becoming big, but their myopic views for short-term gains and not betting on the future lead to their downfall.

Now, these big techs are acquiring smaller start-ups. Start-ups are thought to be the disruptor in the monopolistic market and ameliorate stagnation in an economy. But the only time we hear the name of a start-up, is when they are acquired. Especially during a crisis (like now with coronavirus), when the smaller ones are vulnerable and big tech can get them in pennies. Apple acquired a weather app start-up named Dark Sky because it is costly to develop one in-house (yes weather app, which will not work properly next year due to climate change). You would argue that they lose money with an up-front investment in buying, but they really don’t. They make up for it as their stock prices increase with news of the acquisition, and their competitor stock price decreases with this news. So it is a rigged and a no-lose game for them. Here is an analogy, the Germans in WW2 had better tanks, artilleries and infantries ( and nationalism, hold on till the last man standing) than Allied powers but they were short of oil because the Allied blocked their oil supplies. So Germans, even with all their superior product couldn’t get them operating, while the Allies had enough oil supply to burn through. Similarly now, the big tech has enough cash power to burn through with which they can undercut the superior products of small companies and make-up for their loss after acquiring them or driving them out-of-business. So, start a start-up and wait for it to be acquired and then never be heard again.

We always complain that social media is toxic, but the presence of toxic material is not the problem, rather the spread of toxicity is the problem. Facebook and Google are ad-driven media companies and these toxic gossips and conspiracy theories attract attention. So the underlying hideous algorithm spreads these content. An ad-driven business model is profitable (shareholder happy!), so to make it successful they need your eyeballs hooked onto the screen and the algorithm has come to the conclusion that conspiracy theories and gossips achieve this target. So we need more players so that we can have an option to get out of this toxicity but still be in touch with our friends and sad to say, we have none. Would you guys use a subscription-based instead of ad-driven but free social media? You can answer in the comment section  

Enthusiast brands like OnePlus and AMD, start with a disrupting and humble beginning, flagship killer, support (buy) our products so that we can be competitive to the big players (we are small fish along with the big fish in a small pond). But they slowly start jacking up their price as they spent a major chunk of their money on advertisements (ahem… RDJ). They slowly divert their expenditure from R&D and product development (which made their product great in the first place) to marketing. So AMD will become Intel in the future because these are shareholder driven companies.     

 iPhones and Pixels are the only American based smartphone brands (yes, I counted Pixel), but we have many Chinese brands and companies like Xiaomi were start-ups. I know there are other factors responsible, like manufacturing cost and logistics but still, they are competing hard for the eyeballs of their consumers. But a 99% shareholder driven economy forces company to have a parochial view about the future. That’s why the US was late to 5G technology (well, Trump said that they are working on 6G), they don’t have disruptors in their economy (if there, then acquired) and the big tech doesn’t want to bet on the future as they will lose money and upset their shareholders. And in this desperate time, these small companies are more vulnerable, so if you can, try using apps other than these to support small companies, and that is the minimum we can do.  

Some cool videos for you to explore more:-

1. https://www.youtube.com/watch?v=n1xjdRRIzYw, Scott Galloway talks about the big tech

2. https://www.youtube.com/watch?v=FJgTKx-rg18, Tech altar video on Why enthusiast brands will betray you.

3. https://www.youtube.com/watch?v=l4b1D1vWRnc, The fall of IBM

4. https://www.youtube.com/watch?v=F5NumiX-yfI&t, The fall of General Electric