Leaders 11I
n 2018 anew word entered Silicon Valley’s lexicon: the “tech-
lash”, or the risk of a consumer and regulatory revolt against
big tech. Today that threat seems empty. Even as regulators dis-
cuss new rules and activists fret about the right to privacy, the
shares of the five biggest American tech firms have been on a
jaw-dropping bull run over the past 12 months, rising by 52%.
The increase in the firms’ combined value, of almost $2trn, is
hard to get your head round: it is roughly equivalent to Ger-
many’s entire stockmarket. Four of the five—Alphabet, Amazon,
Apple and Microsoft—are each now worth over $1trn. (Facebook
is worth a mere $620bn.) For all the talk of a techlash, fund man-
agers in Boston, London and Singapore have shrugged and
moved on. Their calculus is that nothing can stop these firms,
which are destined to earn untold riches.
This surge in tech giants’ share prices raises two worries. One
is whether investors have stoked a speculative bubble. The five
firms, worth $5.6trn, make up almost a fifth of the value of the
s&p500 index of American shares. The last time the market was
so concentrated was 20 years ago, before a crash that triggered a
widespread downturn. The other, opposite concern is that inves-
tors may be right. The big tech firms’ supersized valuations sug-
gest their profits will double or so in the next decade, causing far
greater economic tremors in rich countries and an alarming con-
centration of economic and political power.
The question of a bubble is a reasonable one.
Tech cycles are an integral part of the modern
economy. The 1980s saw a semiconductor
boom. Then, in the 1990s, came pcs and the in-
ternet. Each cycle fades or ends in a bust.
Today’s upswing got going in 2007 with the
launch of the iPhone. By 2018 it, too, seemed to
be showing its age. Sales of smartphones were
stagnating. Data scandals at Facebook crystallised anger about
the tech giants’ flippant approach to privacy. Global antitrust
regulators were on the alert. And the loss-making antics of flaky
tech “unicorns”, such as Uber and WeWork, evoked the kind of
speculative froth often seen at the tail end of a long boom.
In fact, at least for the biggest tech giants, today’s valuations
are built on more solid foundations. Together, the five biggest
firms have cranked out $178bn of cashflow after investment in
the past 12 months (see Buttonwood). Their size has yet to slow
their expansion: their median sales growth, of 17% in the latest
quarter, is still as impressive as it was five years ago.
Consumers say they care about privacy but act as if they care
much more about getting stuff, and preferably without having to
pay for it in cash. Since the end of 2018 the number of people us-
ing Facebook’s services (including Instagram, Messenger and
WhatsApp) has risen by 11%, to 2.3bn. Regulators have punished
tech firms for tax, privacy and competition misconduct, but so
far their efforts have been like bringing a pea-shooter to a gun
fight: the fines and penalties they have imposed amount to less
than 1% of the big five’s market value, a tolerable cost of doing
business. And the agonies of some of the unicorns, and their big-
gest backer, SoftBank, have only demonstrated how hard it is to
replicate the scale and network effects of the big five.Meanwhile, the size of the opportunity is vast. As our special
report in this issue explains, many parts of the economy have yet
to digitise. In the West only a tenth of retail sales are online, and
perhaps a fifth of computing workloads sit in the cloud with the
likes of Amazon and Microsoft. Big tech operates globally, giving
it more space to expand, especially in emerging economies
where spending on digital technology is still relatively low.
The trouble is that if you think that tech firms will get much
bigger and diversify into more industries, from health care to ag-
riculture, it is logical to assume that the backlash against them
will not fade away but, eventually, get bigger.
As big tech’s scope expands, more non-tech firms will find
their profits dented and more workers will see their livelihoods
disrupted, creating angry constituencies. One crude measure of
scale is to look at global profits relative to American gdp. By this
yardstick, Apple, which is expanding into services, is already
roughly as big as Standard Oil and usSteel were in 1910, at the
height of their powers. Alphabet, Amazon and Microsoft are set
to reach the threshold within the next ten years.
When recession strikes it will fuel new resentments. Big tech
could face a storm that few have yet paid much attention to (see
Business section). The big five firms employ 1.2m people and are
now by far the biggest investors in corporate America, spending
almost $200bn a year. Their decisions about
whether to squeeze suppliers, slash investment
or attack weaker rivals will prove as controver-
sial as those of carmakers when Detroit still
ruled in the 1970s, or even of Wall Street in
2007-08. Big tech’s role in politics is already tox-
ic; social media and videos influence elections
from Minnesota to Myanmar.
All this means that, far from having peaked,
anger may be in the foothills. Executives hope that slick lobbying
will protect them. But even today, the picture outside America is
not of inaction but a tumult of regulatory experiments. China
keeps its internet giants under tacit state control and wants to
rely less on Silicon Valley, including Apple, which is already
dealing with the covid-19 virus and other headwinds there. At
least 27 countries have or are considering digital taxes. India has
cracked down on e-commerce and online speech. The European
Union (eu) wants individuals to own and control their own data,
an approach this newspaper favours, although it may take years
of innovation to create a system that is easy for consumers to use
and profit from. This week the eu proposed curbs on artificial in-
telligence. Even in America, trustbusters may limit big tech’s
ability to gobble up startups, a strategy which has been instru-
mental to the success of Alphabet and Facebook in particular.Just when you thought platforms were back in fashion
The $5.6trn market value of tech’s formidable five is a testament
to some of the most commercially successful companies ever
created. But it also assumes that they will get a lot bigger even as
the world stands by and watches placidly. Until today, big tech
has been largely unscathed. The bigger it becomes, the more rea-
son there is to doubt this can continue. 7Big tech’s $2trn bull run
Investors think the techlash is over. That judgment is prematureLeaders