How Big Tech got so big: hundreds of acquisitions

Some of it is lack of antitrust enforcement. Something that isn't mentioned much, though, is that business IT technology reached the point that planetary-scale companies work well. Until the 1980s or so, big companies had scaling problems. Big companies developed huge internal paperwork operations, huge headquarters staffs, too much middle management, and were choking on their own operating problems. There were inherent limits on bigness, beyond those imposed by the cost of transportation. The classic example was General Motors, which had a long history of management problems from sheer scale.

That's been fixed. Amazon, Google, WalMart, Alibaba, etc. have worldwide operations without major scaling problems. Those companies can adapt and change reasonably rapidly. The knowledge of how to do this is widespread. This is new. An inherent limit on bigness has been eliminated.

I think an important thing is also using companies as foreign tools. The nsa would hate to see Google or Facebook broken up and supplanted everywhere by local companies. Or, worse, supplanted by a equally large Chinese monopoly.

> But when it comes to monopolies I just don't see them ever going away now. Too much globalization combined with lobbying power and corporate veils.

We’ve been here before though, in the era of Standard Oil. They can be broken up, but it won’t just happen on its own. The government needs to take action.

Globalization and Lobbying are not irreversible trends. The world is already starting to become less "global", with the Chinese belt-and-road initiative, Russian exclusionism, and the breakdown of NAFTA (among other things). Many world powers, including Russia, China, and the US (to some degree) want the world to be less open for trade and large corporations.

as for lobbying, America has been through this before. The Gilded Age saw lobbying to an even more extreme degree, with companies like US Steel and Standard Oil able to basically pay off senators. The same thing happened with slave plantations in the 1850s. After the great depression (and even before to some small extent; see the breakup of Standard Oil), laws were put into place heavily curbing lobbying, insider trading, among other things (like stock buybacks). Really, we're in another Gilded Age, and one day the balance of power between the individual, the state, and the industry will shift again.

> At some point I thought that companies would become more powerful than states, but I've changed my mind on that.

Companies don't need to compete with state power because they can have state power. They can essentially become states within the state. A large enough landowner can be a de facto legal jurisdiction with its own law enforcement arm. Large-scale landlords and employers can simply make and enforce any rule that isn't explicitly illegal. And in addition to eviction and firing (both of which can be catastrophic to many people) they can simply hire "off-duty" police officers to do their law enforcement. Those cops can use more or less all of their police tools and methods, and they can find a reason to arrest and charge more or less anyone in service of their masters.

And in some US states, it is legal for companies to simply have their own private police force, paid by the company and with all the powers of a state police force.

Something I've contemplated lately is what I call the chaos monkey economy. Since it's hard to politically gather the will to fight any given monopoly, we should just roll dice to do it.

Every year we look at firms above some size, and if they fail the saving throw, we liquidate them. Everyone who works there gets 6 months severance, all supplier contracts are terminated, everything they supply likewise. Get a bankruptcy administrator to sell the chairs and real estate, give the shareholders whatever is left.

If it's truly valuable what they do someone will find a way to do it again. If it's just a power position they were exploiting, we'll be free from their tyranny.

> people have trouble with accepting that in the end nobody actually wants to be in a society where companies can do whatever they want and end up being a negative contributor to society

Consumer prices fall, and US consumers' brains just turn off when you show them slaves in the supply chain.

Consumer prices rise, and then people hit the street - everywhere, globally.

It doesn't really matter if their dollar is going to Amazon or 1,000,000 small main street shops. Indeed, both are sourcing the bulk of their goods from places with slave labor. Your gripe is about low prices, not "society," and like, what's your solution?

But when it comes to monopolies I just don't see them ever going away now. Too much globalization combined with lobbying power and corporate veils

tl;dr: it doesn't cost a million dollars to effect political change with money.

I think politically engaged (and frustrated!) people overestimate the exclusivity of lobbying and the power of donations. My understanding (I can't find figures right now) is that you can get a lot of access for probably less than you think. Sick of potholes? Donate $1000 to your mayor and you might find yourself face to face complaining about how many tires you lose per year.

I think someone wrote an article about how much it costs a single person with a single issue to get attention from a politician ('s team), or how little it costs, as the case may be. Yes, hiring a lobbying agency is more expensive, but that's more of a wide-spectrum approach.

There is enough money in these HN threads for people to donate $1000 to each of several politicians in the pursuit of tightening antitrust enforcement, but there's probably just as many who support the current policies. I didn't say it would be easy, but with some money and organization it's not impossible. Of course that's how every special interest started...

Many people erroneously equate Capitalism with Free Markets.

Low interest rates have helped, but I feel like it's primarily the relaxation of regulations that fueled things. We had really low interest rates for a decade or two after WWII, but I don't think we saw the same rate of business consolidation.

> that it might actually be easier to do a bootstrapped start-up for a year and get bought by Facebook than it is to grind leetcode and interview-prep for a year and roll the dice on the interview circuit. I wish I were joking.

If you are not joking you are delusinal, this is not even remotly true.

This is not anywhere close to true. Have you built a bootstrapped startup from scratch and negotiated an acquisition? It's far, far harder than practicing a few leetcode Facebook problems and getting a referral.

If the acquisition is mainly about talent, and in many cases, even if it's not, FAANG will expect you to interview like everyone else.

Source: founder of a company which was acquired by a non-FAANG company, but talked to a few FAANGs as part of the process.

> Especially if your goal is to land a nice FAANG job anyway.

I wouldn't just say getting acquired by a FAANG company. I work for one of the biggest health care companies in the world. Last year they acquired over 200 companies with the goal of exceeding that this year.

They literally are buying companies whose technology they would rather buy then build themselves. If you knew what my company was looking for (machine learning, AI and automation) you literally could start a company with less than ten people, focus your work on one of the three areas and have a better than decent shot of being acquired by the company I work for in a span of less than 5 years.

What would take longer? Building that company with a singular focus on a singular product my company needs or achieving a senior level knowledge of Javascript for a full stack developer role? I would say at that point its a toss up.

> It's gotten to the point where interviewing is so competitive, exhausting, opaque, and ultimately random, that it might actually be easier to do a bootstrapped start-up for a year and get bought by Facebook than it is to grind leetcode and interview-prep for a year and roll the dice on the interview circuit.

Not sure about founders but sometimes you have to interview with the Big Tech Co. as well to keep the job after acquisition.

AFAIK, you're still subject to some sort of vetting process when getting acqui-hired, so you'd still be studying for that anyway.

So it is probably more work than simply studying and rolling the dice over and over.

I get what you're saying but none of those words work.

There are some people who are very well networked and can repeatedly start and sell companies by leveraging those connections as a business model in itself, but this is extremely rare.

Building a business to even be attractive enough for an acquisition is magnitudes harder than any round of interviews will ever be, but I do agree that those interview processes are a joke now compared to the talent they're designed to find.

Eh, both have proven impenetrably difficult for me. I just kind of float through life and stumble into jobs these days.

Oh my, after all these years I finally understand in what way Google actually is like a startup :D

Why would you want to cash out out of something you love? These kind of businesses struggle. But when you have a rich parents, they you come up with some start up idea, hire a team of people to make it - then yes cashing out is a win. But those people don't look at it as business, as a real thing that adds value for other people, but pure selfishly as showing themselves they can pull this off. These people also often steal ideas from people who care and love what they do. Often those people become wage slaves in those rich daddy companies.

I am much further removed from the "startup frenzy" of the early 2010s, but does it seem like this model has trended downward since the start of lockdown?

As optimism about the pandemic rises, it seems like the innovation that you would expect from this kind of volatility never panned out. I suppose capital was pumped into the public market instead?

It's also a 'number of acquisitions' vs. 'value of acquisitions' argument.

If you had to guess the 'value' of TurboTax, The Microsoft Office Suite, Macromedia, Instagram, YouTube, NeXT, Pixar, VMware, etc. etc., you'd probably find that the good M&A outweighs bad.

It's just that bad M&A happens a lot can be really bad (AOL Time Warner).

> Monopoly isn't just about pricing power, and whatever else ancient economists observed in previous centuries.

This understanding of monopoly has only existed since the mid-20th century. Prior to that, the definition of a monopoly was more expansive and included analysis of market & industry structure.

>Huge corporations are harmful to society,

Can you tell me who kept your packets coming during the covid lockdowns?

Huge corporations are important. They possess the capital, logistics and capacity and institutional knowledge, as well as the resources to absorb shocks during crises. They are able to operate society at scale.

On average big business pays higher wages, provides better benefits, is more productive. Monopolistic competition is more dynamic and delivers better outcomes than highly competitive small-business.

>Huge corporations are harmful to society

Not necessarily disagreeing but I am curious how you ultimately came to such a general conclusion. I can see both sides: E.g., Walmart may be good for many in society by offering lower prices, while simultaneously being bad by putting smaller, better paying jobs out of business

I agree that returns would not be much different if they had avoided bad M&A. They have tons of cash and have to do something with it if they don't give it back to shareholders. Amazon has historically had the least amount of cash sitting around and thus has done the fewest acquisitions (FB may be less, but their market cap is smaller and their business is less diverse).

I also agree that returns have been greatly improved by a few key acquisitions for Google (Double Click, Youtube) and FB (Instagram). For Apple and Amazon I don't know where they are benefiting from their M&A (this is likely my ignorance, I would be interested to know).

I just think it makes more sense to focus on a few key (anti-competitive) acquisitions than to complain that big companies do hundreds of M&A deals over a couple decades.

Even worse is that all of this data can be used to infer other data. Once you know enough about a person, you can start making some alarmingly accurate guesses about them. I'm hoping for a lot more than a tax on this kind of data, myself.

Traditionally, you had _decreasing_ returns to scale. What's new with digital technologies is _increasing_ returns to scale. Very counter-intuitive for traditional economists - or even business people. People like Gates, Bezos, Brin & Page, Zuckerberg and so on have ridden this for all its worth. Let's out distance them as much as we can before they figure this out. Whether competitors or regulators.

That said, I like the story about someone observing Gates at, I think, a graduation ceremony where Gates had brought along a biography of Rockefeller (John D.). Did Gates know before or after the fact that MS had in fact used a competitive strategy comparable to Standard Oil?

Meaning, unlike increasing returns to scale that was something for which there was an historical precedent. The basic idea being: when my competitors revenues go up, my revenues also go up. A fatal long-term proposition for those competitors.

The GP is talking about the second derivative of the price, not the first one.

What he talks about is new. And I believe he is wrong, it's just a negative value very close to zero, not positive.

GP is talking about the marginal benefits of scale. In manufacturing, there is a floor at which increasing scale doesn't decrease the cost of making each additional unit. No matter how much a widget company automates their factories, they can't bring down the cost of a widget below the cost of the raw materials. At some point, investing into making widgets becomes a negative ROI.

That often never happens with software because network effects allow each unit of raw material (servers, data, etc.) to produce more value as part of the whole. It would be as if a widget factory could make 2 pounds of widgets out of 1 pound of raw material when it double its sales.

> How do you know that? There's simply no way to know how some of these companies would've fared because these anti-competitive practices have ensured that promising startups are smothered before they become a threat.

Exactly, and adding to that: what about the tons of smaller companies/startups bought for a unique technology that was implemented under the hood across major products of the tech giants? We don't know about them except if some former employee leaked it, most projects will be private/secret and the public at large will never heard about the impact.

Think lots of small "Doubleclick"-ish companies that were bought for a small set of features that were then transferred to major products.

Alot to agree with here - how would Google have faired without being able to strategically acquire companies that made specific tech for ads and search?

They all learned from MS. MS tried to buy Netscape but didn't offer enough and got turned down. So MS set out to use its position to boost its own browser instead, anti-trust followed because it was obvious MS was using its position to muscle out an independent company.

For the big Tech companies now, small acquisitions are win win wins, they get the people, they get whatever was developed and they permanently avoid Microsofts Netscape situation.

That being said, I'm guessing no small number of these startups were setup with the express purpose of being bought out like this.

I'd have estimated more like 10x that on search and around 1/4 of that in gmail.

How did buying Deja’s hard drives — they did not acquire the company, only “significant assets” — lead to Gmail?

> Is it better or more efficient for the people who assemble the phones?

yes. Factory work is better than subsistence farming. And big tech has done 100x more than anyone else in the consumer electronics supply chain to push for better working conditions in those factories.

>Is it better or more efficient for the retail employees making minimum wage?

Yes. Improved margins are what allow wages to rise. Inefficient businesses don’t have the money to pay employees more. Apple retail stores pay on average 18$/hr vs the 10.50 a mom and pop might be able to afford to pay someone.

>Is it better or more efficient for app developers who lose 30% of their revenue to private taxation, or the businesses that never reached their potential because a BigTechCo launched a competing product at a loss?

Yes. Software distributors used to pay 50% to retailers.

> That's not even close to being universally true, and good/bad are in the eye of the beholder. Is it better or more efficient for the people who assemble the phones? Is it better or more efficient for the retail employees making minimum wage? Is it better or more efficient for app developers who lose 30% of their revenue to private taxation, or the businesses that never reached their potential because a BigTechCo launched a competing product at a loss?

Yes. It works better for making technology.

Nothing you have said contradicts that.

Every single one of the indicators you mentioned is better now than it was in the 90s.

What you are calling for is more opportunity for all these people to build wealth.

Making existing industries work less well is not going to achieve that.

Things that might: universal health care, student loan easing, increased investment in impoverished communities.

Blaming things that work well and breaking them is silly.

Making new things that work better is not.

> My mom and dad can work with a Windows laptop just fine.

Mine can’t. All I know is I spend many fewer hours, near zero, doing tech support for my parents on macOS/iOS than when they used Windows.

> I like Microsoft's approach more though. It makes the market more modular, since other companies have access to the same resources.

Microsoft’s approach failed against Apple’s when it came to product innovation. That’s why Apple is now dominant.

The downsides from a societal perspective are imaginary. Things simply weren’t better in any way when Microsoft was dominant.

Having said that, I agree with you - modular could make things better.

This is what I mean by a network of companies.

We need a new model of modularity - not microsoft’s variety.

>None of Apple's "stack" is available to other companies because they have no incentive to sell components. The reverse happens, they buy up independent companies (like the touch id folks) and prevent anyone else from using a given piece of tech.

As Apple's sales success allows them to invest even more in R&D, their tech stack become an even bigger moat. Competitors are going to find it increasingly difficult to create products that can compete with Apple's tech stack on a technological basis.

It is a false dichtotomy.

Inefficient decision making creates environmental pollution.

Regulating to make companies less good at decision making under the belief that this will increase opportunity is literally making society stupider. It is the path to idiocracy.

I’m not against government intervention.

Let’s invest in alternatives, and let’s invest in making people’s lives less precarious.

Microsoft's key strategy was always market domination by monopoly, paid through the vig of per-CPU licence fees (whether DOS/Windows was installed or not, still largely the case), and extending through "productivity software" (MS Office) and later organisational glue (MS Active Directory / Exchange) and the Web (MSIE).

The DoJ case had Microsoft back off that lever a bit, just as Apple executed beautifully (and with some Microsoft concessions in part devolving from the DoJ suit ... yes, a simplification, my 4th-fav pedants), and then hit it out of the park with the iPod and iPhone (subscriptions, apps, hardware sales, fashion accessories, ...).

Google cracked Microsoft's revenue model with advertising (though that may be starting to give a bit), as has Faceboook. Amazon got where both Microsoft and Google wanted to be: between the buyer and the lion's share of online retail.

Work, comms, adverts, shopping, fashion, and entertainment. There's hot competition for transport (automobiles, whether smart, electric, for-hire, or self-driving). There's not a whole lot of consumer spend left to grab that I can see. (Housing. Utilities. Insurance. Finance.)

> I'll offer an alternative hypothesis: Apple won out because they executed well year over year over year. They made that vertical integration work for them by slowly making things better faster than the competition.

You say this is an alternative hypothesis, but it is in complete agreement with me.

Without vertical integration they would have been held back by the rest of the industry. Vertical integration is how they were able to move faster.

> That sounds nice but can't be true. Remember when Apple almost went out of business? It was the exact same situation then.

At that time the company was being run by an executive whose backround was as a flavored soda salesman who tried to adopt Microsoft’s strategy of licensing the OS. That’s why they nearly went out of business.

When they returned to the integrated model and stopped trying to compete head to head, their success returned.

If larger companies are not innovative they will fail. The giants of today haven’t been giant for very long.

There is plenty of money around to invest in alternatives.

I don't think either of those is necessarily a slam dunk. A lot of consumers really appreciate the non-openness of platforms like iOS when it comes to security, privacy, parental controls, and so on. I know your argument is specifically about the Mac, but on the "openness" spectrum, MacOS sits somewhere between Windows and iOS, so iOS is a helpful reference point for where the Mac could end up.

And as for cost— I don't think that's necessarily strictly worse either. I have a Dell XPS now, and it's.... fine. But relative to my old MBP, the screen is worse, the build quality is worse, the trackpad is worse, the keyboard is worse, the power management is way, way worse. So although there might be slightly more compute here in terms of the raw numbers, a lot of corners had to be cut to make this machine work out, and all things considered, I'm not sure that the market is in a better place when even "premium" non-Apple computers don't have the profit headroom to invest in the little stuff.

Since I agree with you and don't have a new point to make, I just want to expand on yours.

Consoles - Apple doesn't compete here. Microsoft is competitive.

Smartphones / tables - Microsoft lost here, Apple competes against Google and various hardware makers instead. They probably win in US market share and net profits, but not global share.

Computers / operating systems - Microsoft still dominates in market share over Apple. Opinions vary (strongly) between which is best, but more people buy computers with Windows than computers made by Apple.

Watches, air tags, etc. - Microsoft doesn't compete here.

Accessories - no clue about market share, but I do think Microsoft makes some pretty good keyboards and mice.

You are looking at today - this is about the history.

In 2002, Microsoft was the dominant force in consumer electronics because everyone assumed they needed ‘PC compatibility’ or even to integrate Windows CE.

If you worked in the industry then, Microsoft was discussed in every meeting and was a major player in standards bodies.

That started to change with the introduction of the iPod.

In biology we understand fairly well that environmental complexity leads to greater biodiversity. If the Earth's environment were entirely uniform there would probably be only a few species and nothing would ever change.

Global highly efficient markets are like a polished flat globe with a uniform climate everywhere. Evolution would produce only one or two species in permanent equilibrium.

Anecdotal stories of the survivors from 100 years ago when you could work a bottom of the barrel job for 1 week and cover a months living don't apply today. In order to insulate yourself from failure, you need wealth today to draw upon and cover your cost of living. Many americans don't have a spare $400 (1), they can't quit their job to tinker with a perennially failing side business without ending up risking living on the street. Many americans are trapped.

1. https://www.cnbc.com/2019/05/23/millions-of-americans-are-on...

That sounds like a survivor bias story

The myth that Amazon “sold their excess computer capacity” has been disproven for years.

Just think about it. If Amazon had excess computer capacity and sold it to other companies, what was it going to do when it needed that excess computer capacity? Kick others off?