For several years, I’ve been concerned about the pace of innovation in the tech sector. There are many ways to measure this, of course, but one yardstick is new-company creation. That is, what new companies will be tomorrow’s corporate titans? After the launch of Facebook in 2005 (and its IPO in 2012), there aren’t many new U.S. companies that have moved the needle. Uber is still reported to be losing more money than they publicly acknowledge, in part because of non-standard accounting practices (see Hubert Horan’s ongoing dissection here). Airbnb could end up as a winner after having successfully navigated the drop in travel related to Covid — cars/transit and real estate/lodging have many fundamental differences. I don’t know enough about the various crypto startups to a) keep them all straight or b) predict a winner. (There’s also a philosophical contradiction between decentralized permission-less finance and a centralized gatekeeper that collects tolls.) Some companies that were bought in their infancy, notably YouTube and Instagram, might have emerged as substantial standalone businesses, but the histories of near neighbors Vimeo and Snap suggest otherwise.
So the short question becomes, where are the tech giants of the next decade? To study this, I looked at the Fortune 50 for the years 2000, 2010, and 2020. The list ranks companies by revenues rather than market capitalization, so goodbye Tesla. The methodology disconnects hype from actual customer-serving cash changing hands, as we will see shortly. My purpose in compiling the lists was to study the age at which a company entered the truly big leagues: if it’s typically on the order of 5 years, versus 25 years, from founding, that can help us identify the seed corn of the 2030 Fortune 50.
Here’s a quiz. In the 2020 Fortune 50, there are 8 tech companies. I counted Amazon but left off telcos, mostly arbitrarily, in part because of the monopolistic heritage enjoyed by AT&T in the 2000 list and in part by these companies’ lack of innovation given their role in managing plumbing. In alphabetical order, here they are:
- Alphabet/Google
- Amazon
- Apple
- Dell
- IBM
- Intel
- Meta/Facebook
- Microsoft
The quiz: rank them in order of revenues:
Amazon $280b (#2 overall, slightly over half as much as Walmart)
Apple $260b (4)
Alphabet $161b (11)
Microsoft $125b (21)
Dell $92b (34)
IBM $77b (38)
Intel $72b (45)
Meta $70b (46)
Dell showed up far higher than I would have predicted, Facebook lower. IBM slipped from #6 in 2000, to 18 in 2010, to 38.
The old cliche holds that it takes X miles to turn an aircraft carrier, and once you get a company (or other entity) to a certain size, momentum can take hold and prolong the demise. At the same time, the numbers can be harsh: Ford had lower revenues in 2020 than it did in 2000. GE famously was removed from the Dow Jones industrials in 2018: it slid from #5 in the 2000 Fortune list to 33 in 2020, when revenues were 14% lower than they had been 20 years earlier.
What about growing: how fast can that happen? Even though they pioneered the build-to-order model in the PC boom of the 1990s, Dell didn’t make the 2000 Fortune 50, ranking it lower than Compaq, Intel, and Motorola, that did. Despite having been the target of federal antitrust litigation in the 1990s, Microsoft fell outside the 50 in 2000, lagging Ingram Micro, Costco, and even USX (the former US Steel). As the decade of the 2010s illustrated, however, once the flywheel starts spinning, growth can be consequential. In 10 short years Apple moved from #35 to 4, Google from #102 to 11, and Amazon from 100 to 2. In none of these cases was acquisition the major revenue driver, unlike other sectors such as healthcare where big players consolidated. All of these companies were at least 20 years beyond their founding in 2020. Facebook seems to be on a similar trajectory if it can weather the current instability.
All of this is prologue to the original question: Of the companies launching after 2005, when will we see one in this august company? Let’s look at it from a different angle: what customer need did the previous champions meet? Apple is still riding the smartphone wave, expanding the revenue base to incorporate more services and points of access beyond the phone. Amazon satisfies the need for low prices, extreme convenience, and, in some segments, vast product assortment. Like Apple, Amazon is expanding from its core business, successfully augmenting retail with services (AWS) and now advertising. Facebook and Google now in some ways play closer to Disney as captors of human attention to serve their customers, the advertisers. Just as there is market failure in health care when the parties that pay are often not the parties consuming the products and services, so too might the division between advertisers’ needs and people’s tastes/behaviors reset the market. Meta is currently fighting the perception that it is no longer an essential aspect of billions of people’s daily life, for example. For all its success, it’s hard to see Reddit joining Walmart and Bank of America as a $50 or $100 billion company. The same goes for Zoom or Dropbox: is either video conferencing or cloud storage a feature, or a company? Meal delivery plays to some of the same consumer impulses as Amazon does, but ultimately there is only so much price elasticity (on the customer’s part) and margin compression (on the restaurant’s) that UberEats/GrubHub/Postmates/
So where does that leave us? The US-based venture scene, in tech plays, doesn’t have a lot to show in the last 15 years. But that’s the giveaway: looking internationally, the picture is considerably different. Spotify is an obvious point of interest, but the big story is in China. In alphabetical order, Alibaba (e-commerce and payments), Baidu (search and cloud), JD (e-commerce and AI), Pinduoduo (online farm fruit and produce), and Tencent (diversified holding company including games, messaging, VC, and others) suggest some paths forward. I say “suggest” because much remains unknown and/or problematic. Part of the issue is the complex relation between these companies and both their investors and their customers. At the same time, there are fresh ideas, executed at scale, with the potential for both extreme revenue growth and attractive profit margins were the model attempted outside China. JD and Alibaba are already Global 100 companies, Pinduoduo is only 7 years old but approaching a billion customers, and Tencent flirted with a trillion-dollar market capitalization early last year.
The outlier here is ByteDance, TikTok’s corporate parent. Unlike even the largest success stories in China, TikTok is global in a way that few companies can claim. The algorithmic cleverness, executed exceptionally well, means that TikTok can entertain its vast user base with content that costs very little to develop and addresses shifts in the cultural winds with speed that Netflix or Disney could never hope to approximate. Founded ten years ago this month, ByteDance is, I believe, the heir to the Microsoft/Dell/Google/Facebook lineage, albeit with the asterisk noted above: even though TikTok and the company’s other viral apps have succeeded both inside and outside China, governance of such a profitable and fast-growing entity is being invented on the fly. What was possible and legal in 2018 may not be now (see last summer’s newsletter on China’s data privacy draft regulations). Similarly, access to western capital sources is apparently being reconsidered, with an as-yet unclear endgame. Finally, the degree to which individual entrepreneurs can personally benefit also appears to be in a state of compression. Amid so much state-related uncertainty, to anoint ByteDance the king-in-waiting for global tech feels exceptionally premature. At the same time, if that uncertainty resolves primarily in entrepreneurs’ favor, such an outcome is fully plausible. At this point, I can foresee the passing of the baton, but the details of the transition are fuzzy indeed.
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Random tidbits from the Global 500’s top 100 for 2020:
- Ford earned more revenue than GM in 2020, but not by much ($5 billion, or about 4%), with Honda in between. The shock for me was seeing BMW only $10 billion behind GM.
- CVS Health and McKesson both rank in the top 12 of revenues worldwide, both of them exceeding Saudi Aramco. AmerisourceBergen (17) Cardinal Health (30), and WalgreensBoots (36) are nearly as big. Moving and selling drugs is far bigger business than making them: the top Pharma on the list, Johnson & Johnson, ranked 94th, then last November announced it’s splitting itself into two companies.
- The sun has definitely set on the British empire, as there are now only 2 companies in the top 100: BP (#18) and Tesco (99).
- Telcos are still major revenue factories: 6 companies land in the top 64, three of them in the U.S. — AT&T, Verizon, and Comcast.
- Banks don’t have lots of revenues, for whatever that’s worth: Home Depot outranks JPMorganChase, the top U.S. bank on the list.
- Whither the “national champion”: Germany is clearly heavily represented in automotive, but what role will Volkswagen and Daimler play in an electric-car future in which multiple cities are banning cars from the urban core? In Japan, the three major global players are Toyota, Honda, and Mitsubishi, the latter a more diversified play. The same question holds for BP, France’s Total, and Royal Dutch Shell (since last November, now just “Shell,” headquartered in London). In the Netherlands, meanwhile, the firm with the highest revenues is now Exor Group, the Italian Agnelli family’s holding company with no significant holdings in Dutch companies. The days of enterprises such as Rolls Royce, Renault, Fiat, Alstom, and even Airbus getting unquestionably favorable government treatment seem to be passing. In the U.S., GE is no longer too big to fail (it too is trivesting itself), and even Boeing has less leeway than it used to.
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