Revisiting the Big Tech ‘Frightful 5’ Five Years Later

The Distinction That Separates the Big Five From FAANG+

The terms FANG and ‘Frightful Five’ are not new. The former still appears frequently today as FAANG+ in reference to hot tech companies and even though – five years later – the ‘Frightful 5’ label has all but vanished, the profound observation it offered endures.

This article briefly looks at the origin of the terms and the companies they represent, and it revisits the dominant dynamic highlighted in The New York Times article five years ago.

The FANGs

The acronym FANG was originally popularized by Jim Cramer in 2013, and it stands for Facebook, Amazon, Netflix, and Google. Although most sources claim Cramer coined the term, it was conceived by Bob Lang to describe ‘turbocharged’ ‘momentum’ stocks with a lot of room to grow at that time.¹ The term was later extended to FAANG to include Apple, and there are mutations under the label FAANG+ which include additional stocks.

Even though markets have changed over the years and one of the corporation is also operating under a different name, the FANG label survived, and it also seems its meaning in some circles has shifted to represent more broadly large modern technology companies.

Frightful Five

In 2016, Farhad Manjoo picked a different group of five, and he based it on different criteria than Lang. In the title of his article in The New York Times, he proclaimed that the Tech’s ‘Frightful 5’ Will Dominate Digital Life for Foreseeable Future.²

The companies he selected were Alphabet (Google), Amazon, Apple, Facebook, and Microsoft. A quick look at the reasoning behind Manjoo’s selection and the present situation confirms not only that these ‘Frightful 5’ dominated the first five years but we can also safely repeat that they will continue to dominate “for the foreseeable future.”

The Inescapable Dynamic

If you have not read the original article, I fully recommend you do. In fact the five years retrospect makes for an even more fascinating re-reading of it. Not because these five companies have indeed enjoyed an unshakable position – everyone knows that. But because of seeing the key insight in play: While these companies are fiercely competing with each other, they are only getting stronger thanks to everyone else.

The idea that a new successful challenger can beat one of the ‘Frightful Five’ because “someone, somewhere in a garage is gunning for us,” as Alphabet’s Eric Schmidt likes to say, is a motivational romantic fable. The original article did not suggest that other companies could not succeed, and neither am I. But the success of new entrants leverages the platforms of the ‘Frightful Five,’ further cementing their own positions.

The worst threat the ‘Frightful Five’ can encounter is really an opportunity – a growing, successful company that one of the big ones will acquire. (Ironically, partially with the money that the acquisition target and other companies spent with them.)

Which Is Why It Included Microsoft and Not Netflix

There was a good reason why Netflix was included in the 2013 original selection of FANG companies (and continues to be included in many of its current variants) but excluded from the ‘Frightful Five.’ The point to remember is that FAANG+ is about rising tech stocks high upside.

The ‘Frightful Five’ concept is not concerned about stock price potential but with being in a position that is unshakable because the given company is indispensable on the path to success for anyone else. Unless you are producing media products that might require a deal with Netflix, you do not need Netflix. But you will need most, if not all, of the ‘Frightful Five:’

• Office capabilities (communication, real-time collaboration, storage, office suite) require either a Microsoft365 license or a combination of multiple tools; financially benefitting (directly or indirectly) the same ‘Frightful Five.’
• Software development is essentially impossible if one needed to avoid all of the following: Visual Studio, Windows Linux Subsystem, Azure, and GitHub.
• Cloud computing and content delivery heavily relies on Amazon and Microsoft, with Google fighting hard for a larger share.
• Selling, delivering, and marketing your products at scale is going to be very hard without Facebook, Apple, Amazon, and Google.

The list could go on and in each case, most alternatives, in turn, leverage services and capabilities of the same five companies.

Beyond 2021

The dynamics described in the original article will continue to operate and strengthen the position of the ‘Frightful Five.’ Yes, more companies might join the club (Salesforce could be one), but it’s very unlikely that any of the existing members would lose their standing.

The New York Times article explored other angles, including thoughts on the competitive advantage that the ‘Frightful Five’ will enjoy because of the huge amount of customer and market data that they have amassed and which their new and future competitors obviously cannot have.

Speculating about the most likely sources of downfall for the current five, the article pointed to either government regulation, the companies’ own overextension, or an emergence of companies in China that would grow independently from these established players.

The label ‘Frightful 5’ might have not have caught on because the name is not very flattering. Maybe it needs a better name. But the thoughts in the ‘Frightful 5’ article shed light on a lasting principle behind the dominant technology companies, rather than a point-in-time observation of ‘momentum’ stocks which was behind FANG.

Footnotes

¹ Brodie, Lee. Cramer: Does Your Portfolio Have Fangs? 5 Feb. 2013, www.cnbc.com/id/100436754.

² Manjoo, Farhad. Tech’s ‘Frightful 5’ Will Dominate Digital Life for Foreseeable Future. The New York Times, 20 Jan. 2016, www.nytimes.com/2016/01/21/technology/techs-frightful-5-will-dominate-digital-life-for-foreseeable-future.html.