The four biggest companies in the world are from the technology sector
Following the news that four tech companies, Alphabet, Apple, Microsoft, and Facebook, now sit atop the S&P 500, I’ve been asked by a couple of Spanish financial publications about the significance of this and what it might mean for the future.
A lot of people still find it hard to understand how companies like these can be worth so more than traditional players in the energy, pharmaceutical, motor, or distribution sectors. They remind me of my efforts to explain to my wife’s grandfather, a wonderful man who died last year at the age of 93, that even if I was wearing my pajamas when sitting in front of my computer, I was still working, to which he would politely nod, and then ask me when I was going to get a real job :-)
Here’s the full list of questions and answers for one of the interviews I gave:
Q. How significant is it that these four companies are now the most valuable in the world, and do you think they are going to be around for a long time?
A. I think it makes perfect sense that companies in the industry able to add the most value at the moment should be the most valuable. They’ve reinvented everything: the way we communicate, relate to each other, inform ourselves… it’s only normal that companies that have developed platforms that so many people use for more and more things are making a lot of money. These are companies whose products and services are redefining the times we live in, and the world with it. They are the symbols of our age, omnipresent, and this means they are able to attract and retain talent to grow still further. This in turn allows them to conquer new territory from companies unable to adapt to the changes around them.
Q. How well do you see them being able to hold on to their domination of the markets?
A. The important thing isn’t whether they occupy the top spot per se, but that they have the resources to keep on innovating rather than necessarily consolidating and stagnating. Google’s strong point is that its management genuinely understands and values innovation: it’s the company’s number one priority; it’s the vision thing that takes it into uncharted territories most other companies would never enter, but that when properly managed can yield huge value. On the downside, the company remains overly dependent on its advertising business model, one that users find increasingly intrusive and want nothing to do with. Until the issue of pushy advertisements is addressed, there will be doubts about Google’s long-term sustainability.
Apple is an extremely interesting company with a business model based on creating evermore reasons for its loyal customers to go into its stores and buy its products. An Apple computer user looks for excuses to buy the company’s smartphones, iPods, iPads, etc. Apple’s dependence on the iPhone is not that worrying: any company able to lead technology is in a good situation. The simple truth is that the iPhone gives its users a high quality experience few competitors can match. But the company is overly dependent on its pipeline of products and the need to find new categories to reinvent.
Microsoft has risen from the dead: it was making plenty of money, but increasingly sliding into irrelevance. Under Steve Ballmer, one of the worst CEOs in history, Microsoft missed out on a decade of revolutionary change, losing its ability to attract and retain talent, losing a lot of its value in the process. The man who has turned the company’s fortunes round is none other than Satya Nadella, a brilliant leader who understands that Microsoft has to open itself up in every sense, applying its innovation potential and market reach to tackle trends such as open-source, development communities, virtual reality, and the cloud, to name but a few. Microsoft is once again on the up and that is good for everybody.
Facebook knows its business model is very unstable, which is why it keeps such a close on the ecosystem it lives in, buying up pretty much any company that could disrupt things. In its favor is the fact it is sitting on a network of some 1.6 billion users it can study to try to forecast the next big thing. It has also shown itself able to integrate the companies it buys really well within its open culture, allowing them to operate largely independently, which has helped retain talent. On the downside, it has an increasingly difficult relationship with users who see its business model as one built on invading people’s privacy.
Q. Do you think Apple can shed its dependency on the iPhone? Is it the same as Google and Facebook’s dependence on their advertising business? Is the crisis at Apple being exaggerated?
A. I don’t see any crisis at Apple. I see ups and downs based on its ability to launch new products, another cyclical downturn in sales, from which it has recovered in the past. It hasn’t been hurt by the downturn in China and it continues to be far and away a leader in innovation, even if all it has really done is reinvent and redesign existing products. I can think of any number of companies that would like to be in a crisis like Apple’s.
(En español, aquí)
