When Google’s parent company, Alphabet, said on Monday that revenue at the company soared past $161 billion last year, it was a stark reminder of the widening gap between tech’s wealthiest outfits and the rest of the industry.
And there is little reason to believe that will change.
In the last two weeks, Microsoft, Apple and Amazon — like Alphabet, all flirting with a $1 trillion stock value on Wall Street — posted record results. The final member of tech’s Big Five, Facebook, which is a little more than halfway to a $1 trillion valuation, also reported strong earnings.
With each passing quarter, tech’s wealthiest companies are building on their power, making it harder for smaller outfits to compete and for entrepreneurs to build the next Google or Facebook.
Amazon and Microsoft are profiting from the shift to cloud computing. Apple continues to own the premium market for apps, smartphones and wearable devices, while Google and Facebook are maintaining their grip on digital advertising.
This gravitational pull toward a handful of companies could have far-reaching implications for the global economy. Few tech outfits can afford to make the investments necessary to keep pace with the giants. The rest? They often have to pay up for access to the giants’ many, many customers and technology.
“The strong are getting stronger, and the weak are getting weaker. It’s a market of have and have-nots,” said Daniel Ives, managing director of equity research at Wedbush Securities. “In 20 years covering tech, it’s unlike anything I’ve ever seen.”
Despite saber-rattling in Washington and elsewhere, it is clear that regulatory and legal scrutiny of the tech industry’s most valuable companies so far has done little to hurt the bottom line. Last year’s financial results could lend more weight to arguments that a handful of companies, with dominant market shares and outgunned competition, are unfairly cashing in on their control.
Amazon, Apple, Alphabet, Microsoft and Facebook made a combined $55.2 billion in net profit in the most recent quarter. The next five most valuable tech companies made roughly $45.5 billion in their four most recent quarters. While Facebook is lagging behind the rest of the Big Five, it is still worth twice as much as the next most valuable company, Intel.
The picture is darker the further down tech’s food chain you go. A growing number of startups are cutting jobs to get their expenses under control. And older tech companies, still profitable but slowly losing influence, are struggling to adapt to the changing landscape.
As the rich get richer, they are also branching out. They are muscling aside or buying out rivals. And they are locking in the industry’s best engineers with paydays smaller companies could never match.
Amazon said last week that it had invested in the infrastructure needed to speed up shipping times for its Prime members to one day from two, raising the bar even higher for retail competitors. But Monday’s trading on Wall Street showed just how hard it is to stay in the trillion-dollar club. Despite its e-commerce and cloud-computing dominance, Amazon’s value dipped just a bit below $1 trillion.
Apple recently earmarked billions of dollars to create shows and movies for its video subscription service in a challenge to Netflix, while Alphabet agreed to buy the activity tracker Fitbit for $2.1 billion in November and the analytics software firm Looker for $2.6 billion in June.
“Today’s dominant companies have so much power across such a broad array of markets and continue to leverage that power to expand into new markets,” said Patrick Spence, chief executive of the speaker maker Sonos, at a congressional antitrust hearing last month in Boulder, Colorado.
Sonos has sued Google, accusing Google of infringing on five of its patents, including technology that lets wireless speakers connect and synchronise with one another.
Tech’s richest companies seem to be defying a Wall Street assumption tha
