The effects of modern tech company conglomeration

The largest tech companies in the world, also known as FAANG (Facebook, Apple, Amazon, Netflix, Google)

Company conglomeration is nothing new, but in the field of technology it has huge effects that we have not seen before. When a company starts to grow, it eventually wants to look at diversifying their business strategy. This means that instead of focusing on one product or service, it might also produce other products or come up with additional services. If a company does this, it can use its prior experience to be successful in their new strategy or create a whole new system of products and services that can integrate seamlessly with each other. If a company keeps doing this, it is possible that it can end up as a huge company with a wide range of products or services until it may look like a monopoly. Something similar has been happening in the technology sector ever since the late 1900’s and has given no sign of stopping anytime soon. While this might be concerning to the customers of the large tech companies, it can also carry some advantages to the average consumer.

Over the course of couple decades, the definition of a successful tech company has changed. Back in the day when digital technology companies were still in their start-up phase, they just focused on just one product. Google started off as a search engine, Facebook started off as a very early version of a social media platform and Amazon started off as an online store. Throughout the years, each of these companies established their position in the tech world with their product and were able to make an enormous amount of money with them. But what they also understood is that they needed to keep growing, or they would be beaten by their competitors. So, each of these companies did not stick with their original business plan to stay successful. Google established a wide range of integrated services such as an email provider, personal cloud storage and workspace environment.  Amazon started to offer cloud computing services, which are completely unrelated to an online shop. Even Facebook recently started to broaden their horizon by investing a lot of money into the Virtual and Augmented Reality platform called the Metaverse.

This idea of company conglomeration is nothing new in the business world, but it is remarkable that tech companies were able to do this while other sectors seem to be less attached to this strategy. There is something different about tech companies in comparison to medical, industrial or consumer hardware companies that allows it to thrive with a broad range of products. Some recent examples of conglomerate decomposition are the splitting up of Johnson & Johnson, General Electronics and Toshiba. These companies have shown that at some point of a companies’ growth, there will be a point where the size of the company will slow down the whole company.

It is yet to be proven if the big tech companies will sustain their growth in their market. Tech companies such as Apple are setting unheard of market cap records. These companies are already way past the size of any company where it had to make the choice to split up. Yet, there are no clear signs that these companies are slowing down anytime soon.

It is very clear that at least some of these tech giants are here to stay, and we need to be aware of what it means for our society. It is not only the shareholders that take profits or losses from these companies, but it will also affect our society in general. It is very probable that companies that are worth so much money have a large political impact, for better or worse. It may sometimes not be clear to the average consumer, but it does have an impact on a larger scale.

One of the reasons that tech conglomerates can keep their consumers is through vendor lock-in. Vendor lock-in occurs when a company can force their customers to keep using their products. This is usually done by making their products proprietary or making their product integration so seamless that it does not seem to make sense to switch to a competitor’s product. A good example of this is the way in which Apple integrates its products. Most consumers start out by buying an iPhone. Then Apple encourages using all its proprietary services such as iCloud, iMessage and Apple Music. Some consumers decide to only use their iPhone without any accessories. But, they may also buy their Air Pods and Apple Watches to make their day-to-day life a little easier. However, a disadvantage that comes with all these products is that it will be very hard to transition away from these products. If you want to start using single product that make use of Google’s services, you will have a very hard time to transition away from the Apple services. Software data is not necessarily easy to transfer, and your hardware can only be used in combination with products from the same brand. This business practice drastically limits the number of products that a user is willing to choose from and puts other businesses at a disadvantage if it tries to compete with the larger brands.

While this business practice seems to be very unfair, it does seem to keep users happy in terms of user experience. If a company can seamlessly integrate all their products, it will improve user experience a lot. In the case of Apple, Airdrop is a very popular way of sharing media with other consumers that have Apple devices and the fact that an iPhone nowadays can double as an improvement of an Apple laptop webcam can be game-changing. The American Customer Satisfaction Index even awarded the company the highest score in the personal computing industry for a couple of years in a row. There is no denial that for the average consumer, vendor lock-in does not really matter. The marketing of Apple products might play a role, but it the user experience is unmatched.

This integration of consumer products does seem to raise some privacy related questions. If a company can process data about every part of your day-to-day life, it is very probable that that data can be abused. You might not be aware of this, but you can very easily be subconsciously manipulated by tech companies. Let us take Google as an example for this. Google’s search engine keeps track of your searches to improve your search results. Google can also keep track of your location with their Google timeline feature. These two services can be used in combination to steer you towards specific places that you look up using their search engine or show you advertisements that are related to your searches. If Google knows that you are in Amsterdam and you are looking for a nice restaurant, it can sell your top search query results or advertisement space on your device to the highest bidder. In this way, you do not necessarily get the best result for you, but what is best for Google to show you.

Smaller tech business owners are also heavily affected by the size of these conglomerates. It is very hard to compete in the tech world if you are heavily outmatched in capital, manpower and experience. If you look at YouTube, which is owned by Google, it is nearly impossible to create a platform that is comparable. Without a multi-billion-dollar investment, it is impossible to replicate the technological infrastructure that YouTube has managed to create. The platform consumes an unfathomable amount network bandwidth to serve its videos, requires a massive amount of CPU power to correctly deliver its videos and employs a gigantic number of employees that make sure that content is moderated. These resources do not even include the software engineers that make sure that the recommendation and advertisement systems are working as intended. This specific example is quite large, but the same principle also applies to companies that want to start a web shop but are outmatched by the ease of use of Amazon.

Not just tech business owners are put at a disadvantage, but also some physical businesses are affected by tech conglomerates. If everyone is using the same platform to keep in touch or order from local businesses, it becomes very easy for tech companies to take advantage of this. Take the steadily growing company Uber for example. Not only is Uber an easier alternative for finding a taxi, but it also provides a way to order from your favourite restaurant through Uber Eats. While it seems like a good thing to make these things easier, it does also come at a cost. The way in which Ubers makes a profit is by taking a cut from the amount of money that you are paying your taxi driver or restaurant. It might look like you are doing these businesses a favour by finding them through Uber’s platforms, but you do need to keep into account that these businesses are not profiting as much when being registered through on their platform.

On the flipside, if you manage to be acquired by one of these tech giants, you are probably good on money for the rest of your life. One of these success stories is the acquisition of the social media platform MySpace. The founders of this platform sold this platform in 2006 for 580 million US Dollars, to a media conglomerate called News Corp. (Which later became Fox Corporation). While the success of MySpace did not last very long because of the success of Facebook, it still made sure that some people could retire at a very early age.

The only risk with these kinds of acquisitions is that the business you worked very hard for has a chance to be killed by the acquiring company. If a company has a seemingly infinite amount of money to throw at businesses to see what ideas can fit into the company, it also does not mind killing off a business if it does not prove to be profitable. Google has such a big tendency to do this that there is even a website that keeps track of all the business ideas that it has killed. If a business owner is very emotionally attached to their business, they probably should not sell their business to a large conglomerate.

However, these conglomerations are still a good breeding ground for new businesses. Because they have the resources to keep starting up new ideas, chances are more likely to be tried out. Google is known for giving their workers a chance to work out their ideas. It does not really matter if the idea works out or not, the money pool is endless anyways.

What we are seeing in the world of tech companies is unprecedented. We have seen tech companies grow from a start-up to multi-trillion conglomerates and these conglomerates have shown no signs of growth stagnation. It is remarkable that these companies managed to do this if you look at it from a historical perspective. The size of these conglomerations has a huge impact on consumers, business owners in other fields and even their own employees, for better or worse. Consumers need to be aware of the ways in which companies can take advantage of them through vendor lock-in and privacy abuse, but there is no doubt that they also make life much easier. Other smaller business owners seem to be the most unfortunate in this landscape full of tech giants in terms of competition and having profit taken from them. But, if you have a good business idea and can get one of these companies to invest in your idea, you can probably retire very early. Where the future will take these companies is still unknown. Time will tell if these companies continue to be an integrated part in our lives, or will fall and cause chaos in return.