Who’s Winning The Epic Battle Between Crypto & FAMGA (aka Facebook, Apple, Microsoft, Google, & Amazon)?
On June 29, 2017, I saw the crypto light, and since that time, I’ve believed that crypto is a new computing paradigm, poised to create more disruption and wealth creation in the next 20 years, than the internet has in the last 20. The question I face as a VC is “who is going to capture that wealth creation”? The wealth can either go largely to FAMGA (Facebook, Apple, Microsoft, Google and Amazon), who have captured the majority of tech wealth creation over the last five years, or to the new entrants, aka the crypto natives.
I wrote my fist post on FAMGA, and the negative impact of their increasingly massive power/scale, more than three years ago. In my 2nd FAMGA piece four months later, I was more emphatic about my concern. Stating the only thing that gave me solace was that “nothing is constant but change”. Less than three months later, I saw the crypto light.
In September 2018, I wrote a post titled “The Coming Epic Battle Between Crypto & FAMGA”. This is a follow up to that post. In this post I’ll 1) define what I mean by crypto, 2) highlight FAMGAs growing domination, and 3) discuss the factors that will have the most impact on the battle.
There are a series of emerging technologies, including:
- Blockchain — aka Truth
- Cryptocurrency — it can be cash like, a store of value, but most of the time,, it’s more like frequent flier miles. It’s a reward for providing value to the ecosystem
- Smart Contracts — aka as if-this-then-that statements
- Zero Knowledge Proof — aka the ability to prove things without showing anything, aka Magic
Those emerging technologies, in combination, are ushering in a new paradigm in computing, that enables an (almost) infinite variety of new business processes. That’s what all new computing paradigms enable. The most exciting new business process enabled to date is:
5. Decentralization-aka taking the man out of the middle
And the success (or failure) of these new business processes are increasingly driven by:
6. Community-aka a group of people who help a crypto project succeed incentivized by “value” they derive from that success
FAMGAs Growing Domination
My FAMGA premise is simply that every business is increasingly a data business, and the more relevant data a business has, the better positioned that business is to compete. And FAMGA dominates in terms of the aggregation of data. The obvious negative implications for the world include the stifling of competition and innovation. The power of the oligopoly can be seen by it’s growing share of market cap of the S&P 500 since 2016:
That growth in value is not only driven by their domination of their core markets (e.g. Google has 92% share of search), but their data prowess enables them to dominate other markets:
Remarkably, in 2019, FAMGA accounted for more than 23% of all the returns generated by the 500 largest U.S. companies:
We’ve lived in other times where there were dominant tech companies. In fact, in 1980 IBM had more than 70% market share of all tech market cap:
And, as the graph above shows, once dominant companies can lose that dominance. There is nothing constant but change.
Why Crypto Is Poised Drive Massive Wealth Creation
Crypto is poised to drive massive wealth creation because we have a new set of tools that enable new business processes. It’s already driving massive value.
At $60 billion, Uber is the most valuable company started since 2009. At almost the same time, in January 2009, Satoshi mined the first Bitcoin. Today, Bitcoin is worth over $150 billion, more than 2.5X the most successful startup in the last 12 years. And it’s no only Bitcoin. There are 11 crypto companies that have achieved unicorn status:
Occam’s Razor Says FAMGA Will Capture The Majority Of Crypto’s Value Creation
Occam’s Razor is the construct that “the simplest solution tends to be the right one”. As I look at the competing factions, the simplest solution is that things will stay the same. That FAMGA will continue to leverage its data advantage, it’s scale, and all its other advantages, to outmaneuver and out compete the crypto community, and capture the lion’s share of crypto value creation. In some ways it feels like Star Wars. Occam’s Razor would suggest that The Empire is so dominant, the simplest solution is that it defeats The Force.
There’s A Better Way The Crypto Community Has Two Distinct Advantages
Ultimately, FAMGA is accountable to it’s shareholders and employees. As massive numbers of people use FAMGA, for large periods of time, the future profit growth of FAMGA is not going to come from user growth or growth in engagement. The only way FAMGA continues to grow its profit, is to extract more value from it’s users and from others in it’s ecosystem.
Now I don’t believe these companies are evil. Profit growth is the mantra of capitalism, and I’m a capitalist. But I’m also human. And I believe that there are new business processes that are being built, that simply have better outcomes for humanity far beyond just the economic benefits (which can be enormous). These new processes can enable greater user privacy. They enable forking (which is a feature not a bug). I could go on and on.
But the only way that those new processes overcome the massive competitive advantages of FAMGA and capture the lion share of crypto value creation, is if crypto can:
- Harness the true potential of community
- Leverage first mover advantages (while FAMGA asks for permission)
The Coming Epic Battle For The Future Of Crypto
FAMGA is gearing up for the battle. Facebook is leading the way via Libra and Calibra. Amazon has it’s Managed Blockchain service among other blockchain related services. Microsoft’s Azure recently announced new tokenization and blockchain data management services, as well as “Azure Heroes” non-fungible blockchain tokens for rewarding its developer community. FAMGAs coming hard!
Meanwhile, the crypto community is hard at work building the infrastructure needed and the tools for optimizing community. We’re early in understanding how to provide effective incentive structures for the various community members (aka token economics). We’re also early in optimizing decentralized governance & consensus. But it’s our ability as an ecosystem to solve those problems that will best prepare us for the coming battle
The crypto community also has a significant first mover advantages as a result of being more focused and nimble, as well as from the fact that we often can choose not to “ask for permission”. Maker didn’t ask any regulators for permission before introducing it’s stable coin, DAI. Meanwhile, Facebook has been sitting on it’s hands for seven months since announcing Libra, as it spends tens of millions of dollars on lobbying efforts in D.C. and around the world waiting for approvals. FAMGA has to wait because, as massively valuable corporations, they have too much to lose if they cross regulators.
So who’s winning the fight? To a large degree, it hasn’t even started yet. But with tens of trillions of dollars, and a better future for humanity, at stake, the battle will be epic. So let’s leverage our advantages and fight the good fight. The stakes are simply too important.
If you got at least 0.00000001 Bitcoin worth of value from this post please “Clap” below so others will see the post. I’ll follow everyone who Claps 50 times