(Bloomberg View) The 20 most valuable publicly traded information-technology and internet companies in the U.S. (which I have defined somewhat expansively to include Netflix Inc. and Tesla Inc., since they’re based in Silicon Valley and all) were as of the August 23 market close worth a collective $4.5 trillion. The other 20 most valuable corporations in the country were collectively valued at a not-all-that-different $4.8 trillion.
The similarity ends there, though. The top 20 “non-tech” companies are distributed along a mostly smooth continuum from Berkshire Hathaway Inc.’s $444 billion to Home Depot Inc.’s $176 billion.
For the top 20 “tech” companies, it was a very different picture.
Here it’s Apple Inc., (No. 2 in the B2B E-Commerce 300) Google parent Alphabet Inc., Microsoft Corp. (No. 13), Facebook Inc. and Amazon.com Inc. (No. 104)−what’s known as the Big Five, the Frightful Five, FAMGA, FAAMG and surely a few other things−with everybody else miles behind. Fourteen of the companies on this list wouldn’t even make it into the non-tech top 20. And while I stopped counting at about No. 60 on the tech list, it is entirely possible that the market caps of all the other publicly traded tech companies in the country do not add up to the $3 trillion of the Big Five. (With the non-tech companies, the market cap of the top five is surpassed by that of the next eight.) I noticed this pattern while looking for something else earlier this week, and am still not entirely sure how meaningful it is.
My dividing line between tech and non-tech is pretty arbitrary, after all. The rise of the unicorns−companies that venture capitalists and other private investors have valued in the billions of dollars but have so far held back from going public−could be skewing the numbers, although Uber Technologies Inc. is the only unicorn that would make it onto the above list based on its private valuation, and its private valuation is probably a hopeful fantasy at this point. Most importantly, any single industry is likely to be more concentrated than the combination of lots of different industries.
Still, tech as I’ve defined it is far more than just one industry, and tech-infused companies are constantly finding established industries to encroach upon (cases in point: Netflix and Tesla). So I’m guessing there may be other, more substantive reasons for the great tech bifurcation.
One possibility that occurred to me as I looked through the ranks of iconic, ubiquitous internet companies without particularly gigantic market caps (eBay Inc., Intuit Inc., Expedia Inc., Twitter Inc., etc.) is that many of these enterprises seem to be better at creating value for consumers than generating profits for investors. Economists have been arguing for a while that the internet generates lots and lots of what they call “consumer surplus,” after all. But then there are those big five companies, which may generate some consumer surplus but also (with the exception of Amazon) find ways to churn out huge profits.
Many of the markets that these companies compete in are winner-takes-all or at least winner-takes-most. In software, internet platforms (Facebook’s social network is the clearest example) and even some tech equipment markets, the dominant player enjoys especially hard-to-compete-away advantages. This was true back in the late 1990s, when Microsoft, Intel Corp., International Business Machines Corp. and Cisco Systems Inc. towered over the rest of tech. It appears to have gotten even truer since. And now, tech’s big five are the five most valuable corporations in the U.S. This isn’t just a tech thing anymore. It’s a U.S. economy thing.
The investors assigning these valuations could be wrong: Intel, IBM and Cisco all have lower market caps now than they did in late 1999. If the market’s judgments are even partly right, though, we appear to be headed toward an even more consolidated economy, with power in the hands of an even smaller group of corporations, than the already pretty concentrated one we have now.
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
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