“A million dollars isn't cool. You know what's cool? A billion dollars.” - The Social Network
For a long time, this quote really stood out to many about the ambition needed to develop, launch and grow the next generation of technology companies. When Sean Parker shared this quote with Mark Zuckerberg, it unlocked an emerging truth about technology; there is an opportunity to build really big companies with technology as your foundation.
Within the last 3 years, we have witnessed a new milestone - the trillion dollar company. So, while a billion is 1,000 million; a trillion is 1,000 billion. This accomplishment is nearly unimaginable to think about even 10 years ago. Yet, here we are in 2020 and we have now seen Amazon, Apple, Alphabet & Microsoft all reach a 1 trillion dollar market capitalization.
Not only is the sheer magnitude of this accomplishment amazing, it should not be surprising that every trillion dollar company is technology based. While they all have different areas of focus, what is consistent is that these companies utilize technology to achieve a level of scale that is nearly impossible through any other means.
Given the nearly infinite scale, these 4 companies are likely not going to be the last trillion dollar technology companies that we see over the next decade. While, there is increased regulatory pressure and scrutiny that these companies will be faced with, the reality is that the business models and competitive advantages that are possible because of technology will continue to create outsize winners across a large number of verticals.
Instead of going against the tide, it is perhaps more instructive to see what we might learn from these companies and how we can leverage these lessons when thinking about career preparation and job readiness for the next generation.
If you asked someone 20 years ago if they should place a bet on retail, most people would have chosen almost anything else. Fundamentally though, Amazon is a retail company (at least it used to be). They offer goods and services online that customers purchase.
While building their website and distribution, Amazon also developed a cloud computing division to handle the massive scale of their growing operations. With the benefit of foresight, we can say that this was an amazing investment that should have been obvious for anyone to make.
Yet, there are 2 other retailers who had sufficient scale (Walmart & Sears) who did not make this investment to support similar large operations. So, what did Amazon know that wasn’t visible to other incumbents. I believe that Amazon built first a solution that would be useful for their business. And, they kept iterating and improving on Amazon Web Services until it was good enough for them to begin to sell to others.
Knowing how difficult it was for them to build servers and data centers, they realized that others did not want to go through the same hassle. Instead, they could just utilize a portion of space in Amazon’s cloud to handle their technical infrastructure.
For the next generation, this is a key insight. When building solutions, first make it good enough for your own customers (internal & external). From there, you may be able to unlock new opportunities that you may not have previously considered.
Over the last 10+ years, Apple has transformed themselves from being known as a niche computer manufacturer to making some of the best consumer technology anywhere. The technological credentials of Apple has never been in question. In fact, they were often the preferred choice of creatives and educators. On the other hand, the PC is what gained significant traction in the corporate space.
Apple was always on the lookout to innovate and improve on existing technologies. The first opportunity they saw was in music storage. This was at the time where consumers were taking the 1st steps towards digital music. However, most of the devices tried to keep one foot in the physical and the other in digital. Apple decided to go all in on a device that would store many more songs than anyone else in a smaller footprint. They introduced the iPod.
From there, they saw that perhaps there was an opportunity finally place a tiny computer in everyone’s pocket. There were some that focused on the phone and others focused on other elements.
Apple was the first to recognize that the personal computer in your pocket was a fashion statement. Consumer technology could be sexy. But, it has to be small. It had to look good. It had to have great applications that people could utilize. So, they introduced the iPhone.
There were other companies who had similar scale - Sony & Motorola to have also recognized this shift in the marketplace. In fact, Sony was once a dominant leader in personal electronic devices. Motorola had a similar reputation in mobile phones - does anyone remember the Razr? Amazing!
However, both of these companies were not able to take advantage in the way that Apple was able. In fact, Apple saw sooner than everyone else that it wasn’t just the device that was important, it was also the services that came along with it.
So, not too long after the iPod was launched, iTunes was introduced. And not too long after the iPhone was launched, the App Store was introduced. Apple knew that the technology services that were paired with their devices would create a sustainable competitive advantage.
And, here’s what Apple pushed the bar even further. Once they had gained the confidence in micro electronics - iPod & iPhone, then consumers also wanted their desktop and laptop computers so that they could have a seamless experience.
Now, Apple has identified that the ecosystem of headphones is also a key part of the consumer experience. Their AirPods and Beats business is growing substantially year over year. We also know that voice is going to continue to be an area that creates a better experience.
For the next generation, it is important to think about not just the current state of your business. Instead, students of technology should also think about what other elements you can build trust with consumers so that you can expand further. It’s much easier to expand with your existing base than to constantly have to attract new customers. There are likely very few Apple customers who don’t have an iPhone, iPad, MacBook & AirPods. When you add in the services through AppleTv & the App Store, we can see that Apple continues to have a big runway in front of them.
As the internet began to be a bigger and bigger part of modern day life, Google created a better user experience when they were looking for information. It turns out that Google was at the forefront of a huge shift in consumer behavior. Instead of looking for information in encyclopedias or phone books, people began looking for information using the internet.
Instead of initially inundating searchers with ads, Google played the long game. They focused on first how best to organize the massive onslaught of information. Once the information was organized, Google became most efficient and effective at connecting what users were searching for with the information displayed.
With the core product established, Google could then being serving up advertising alongside those search results. And because Google algorithms had helped organize information on the internet, they also were pretty good at connecting advertising to search queries.
Similar to both Amazon and Apple, there were massive organizations (television and newspapers) who could have seen the shift coming. In fact, their primary business models were not too dissimilar from Google - create content that brings people in and then when they are consuming content, serve up advertising to help connect the dots.
And similar to other incumbents, it was the new companies on the block who were able to take the biggest advantage of the shift. Since they used technology which improves with scale, companies like Google have created an advantage that is very difficult for incumbents and new entrants to overcome.
When the founders of Google started the company, it is very unlikely that they predicted that their company would eventually reach $1 trillion dollars in market capitalization. However, knowing what we now know about technology, we can predict that this will not be the last trillion dollar technology company.
For those who have grown up alongside the development of the internet, there are going to continue to be massive opportunities in technology. However, instead of going after the big win initially, it seems more reasonable to build the product correctly and then focus on monetization afterwards. Although Google has continued to invest in new areas, the primary driver of company revenue and earnings is advertising. It is unlikely that this is going to change anytime soon.
More so than any other company, the resurgence of Microsoft was perhaps the most unexpected. Before Satya Nadella took over from Steve Ballmer, most analysts thought that the best days for Microsoft were in the rear view mirror.
However, the company that brought us the Windows operating system believed in itself. In addition to this fundamental belief, they have some amazing technologists who are able to build amazing products.
With these two ingredients, they were able to build on their prior successes by entering new markets - specifically cloud computing. Hello - Amazon Web Services! It is amazing that not 1 but 2 companies have been able to enter and compete in this fast growing market. Cloud computing was recently estimated to be a $200 billion market that is expected to see double digit growth for at least the next decade.
The former head of the cloud computing division is now the CEO of Microsoft. And since he took over, the value of Microsoft has increased 6X.
For those who are witnessing history in the making, it is important to recognize how trends can either make or break a career. There are likely any number of people who never thought that other companies would lease computing space.
Amazon & Microsoft decided that building a cloud computing infrastructure would be useful to any number of companies who didn’t want to take on this task themselves. This doesn’t mean that these companies are any less technically proficient. Instead, it shows that there is a tremendous amount of scale that can be achieved in computing that can then be subdivided to a number of companies.
The security and infrastructure required to make this work for companies both large and small cannot be understated. However, what also can not be ignored is that it would be incredibly difficult for a new competitor to emerge in this space without a ton of resources to take on Amazon & Microsoft.
We are witnessing companies that have grown to unprecedented market capitalizations right before our eyes. These technology companies have used their innovation and invention expertise to create durable, sustainable moats around their businesses. Although this is going to lead to increased government scrutiny and perhaps anti-trust actions to break them up; the reality is that there are lessons to be learned from companies that can grow so big in such a short period of time.
The next generation would be wise to study Amazon, Apple & Alphabet to really understand how these companies were able to utilize technology to create massive value. And, as they learn more about technology, it can also be helpful to predict which company will next grow much larger than anyone expects.
By building a forecasting muscle early, it helps better filter and narrow down potential opportunities as they get older. It also can help identify which technologies or parts of the technology stack might be most useful to learn. For example, it is well known that Amazon utilize tons of open source technologies to continue to iterate and improve their AWS product.
If one is looking to be at the forefront of emerging technology, it would be helpful to see which open source projects look to be most promising and how they can be leveraged by the next generation of technology companies.