Rockefeller International: The Changing Landscape of Technological Progress
Introduction
In this rapidly evolving digital age, the tech sector is being fueled by the wave of artificial intelligence (AI), leading giants like Microsoft and Alphabet to gain unprecedented growth and reshape the trajectory of technological progress. As we examine the historical patterns of innovation and the current AI revolution, we witness a significant shift in the industry landscape. In this article, we’ll explore the transformative impact of AI and the changing dynamics of the tech sector.
The Evolution of Tech Giants
The tech sector has undergone several waves of innovation, from the rise of mainframe computers in the late 1960s to the advent of personal computers in the early 1980s, followed by the internet boom in 2000. Each wave brought forth new names at the pinnacle of technology stocks. However, it is the AI wave that is challenging the norm and reshaping the industry.
An analysis of the top industry leaders during each wave reveals an interesting trend. In the late 1960s, when mainframes reached their peak, the market had only 25 stocks, consisting of a mix of established office machine manufacturers and emerging computer companies. The average age of the top five companies was approximately 40 years old.
Fast forward to the peak of the personal computer wave in 1983, and we see a decrease in the average age of tech giants. The entrance of newcomers like Apple and Tandon brought fresh dynamics to the industry, reducing the average age of the top five companies to 28.
The internet wave in 2000 marked another shift in the industry landscape, with the average age of the top five companies dropping to 19. It was a time of constant disruption, as no title remained in the top five from wave to wave. However, since the 2000s, a revolving door phenomenon has emerged, featuring the same names repeatedly occupying the top positions.
The Rise of AI and the Dominance of Tech Giants
Today, as AI takes center stage, we witness the consolidation of power among industry giants. Companies like Alphabet, Microsoft, Apple, and Amazon are leading the AI race due to their significant investments in resources and data stores, garnering immense investor optimism about their AI prospects.
Investors believe that these giants will dominate the industry for a long time, leading to the average age of the top five companies trending back towards 40. The concentration of power in the tech sector is exemplified by the fact that the top five largest technology companies now account for nearly 20% of the total value of the S&P 500 index.
Traditionally, as companies grow larger, their ability to achieve rapid growth diminishes. However, behemoths like Apple and Microsoft have defied this notion, with both companies experiencing remarkable growth in recent years, surpassing the combined value of the entire publicly traded technology sector in 2000. This unprecedented dominance raises concerns about the concentration of power in the hands of a few and the potential impact on competition and innovation.
The Need for Competition and Regulation
The increasing dominance of tech giants poses challenges to the industry and the overall economy. Governments are recognizing the need to address this issue, but their efforts to regulate the sector have often had unintended consequences. For instance, regulations aimed at protecting consumer privacy have inadvertently favored incumbents and made it more difficult for new players to enter the market.
Additionally, the rise of AI has created an environment where political influence plays a significant role. Tech companies are investing heavily in lobbying, which allows them to consolidate their positions and protect their interests. This consolidation of power further strengthens the grip of dominant players and stifles competition.
In order to foster a healthy and innovative tech sector, it is essential to strike a balance between fostering competition and avoiding the destruction of existing industry leaders. These giants have made substantial investments in AI and have the potential to bring about significant advancements in productivity and prosperity.
The Future of Technological Progress
As we navigate the evolving landscape of the tech sector, it is crucial to address the deep dysfunction that arises from the concentration of power in the hands of a few monopolistic entities. The implications of continued dominance by a select group of giants are far-reaching and potentially detrimental to innovation and competition.
Efforts to regulate the sector should focus on creating an environment that encourages competition, fosters innovation, and protects the interests of consumers. By promoting fair market practices, governments can ensure that new entrants have a level playing field and that the giants do not hinder progress or monopolize the benefits of technological advancements.
The tech industry is no stranger to disruption, and it is only through a collaborative effort between policymakers, industry leaders, and innovators that we can overcome the challenges posed by concentrated power.
Conclusion
The rise of AI and the dominance of tech giants like Microsoft and Alphabet have significantly impacted the trajectory of technological progress. Through an examination of historical waves of innovation, we can observe a shift in the dynamics of the industry, with the same names consistently occupying the top positions in recent years.
The concentration of power within the tech sector raises concerns about competition, innovation, and the overall health of the industry. Efforts to regulate the industry must strike a delicate balance between fostering competition and protecting existing industry leaders’ contributions to the economy.
As we navigate the future of technological progress, it is imperative to address the deep dysfunction within the system and create an environment that promotes fairness, innovation, and dynamism. Only then can we ensure that the potential benefits of AI and other emerging technologies are fully realized for the betterment of society.
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The writer is president of Rockefeller International
As the wave of AI fuels the tech sector to the top, giants like Microsoft and Alphabet are not only gaining dramatically, they’re gaining in ways that are changing the arc of technological progress.
The first waves of the digital age have brought new names to the top of the rankings of technology stocks. But after the 2000 crash, some big companies began to dig in, staying at the top during the rise of the mobile Internet in the 2010s and thriving again in this year’s AI craze. The disruption is fading in the sector where it should be most powerful.
Expanding on Empirical Research’s historical work, I looked at previous waves of innovation from the rise of mainframes in the late 1960s to personal computers in the early 1980s, the Internet in 2000, and AI this year. Focusing on the biggest gainers at the peak of each wave revealed that the AI wave leaders were older and far more dominant than those of the past.
When the mainframe wave peaked in 1969, the technology market had only 25 stocks. The leaders were a mix of old office machine makers like Burroughs who had diversified into computers and newcomers like DEC – the Digital Equipment Corporation – who avoided using the word “computer” because it was then seen as a red flag for investors. The average age of the top five companies is almost 40 years old.
That fell to 28 at the PC’s peak in 1983, brought down by real newcomers like Apple, which had been founded seven years earlier, and Tandon (eight). It plummeted again to just 12 at the Internet’s initial peak in 2000, when the oldest of the top five was 19 (JDS Uniphase) and the youngest four (Juniper Networks). Until then, from wave to wave, no title remained in the top five.
Since the 2000s, however, the churn has been replaced by a revolving door – the same names swap places at the top. The five biggest and hottest names this year include Alphabet and Microsoft, which launched popular generative AI apps. There’s also Apple and Amazon, which investors assume will do well because developing AI requires huge resources and data stores.
Growing on optimism about their AI prospects, rather than actual AI revenue, investors are betting the giants will rule for a long time. The average age of the top five technicians is returning towards 40, with no newcomers. And their size is unprecedented.
At past peaks, the top five largest technology companies with the greatest price momentum accounted for at most 1.3% of the total value of the S&P 500 index (in 2000). Today the top five are approaching a 20% share: Apple alone is close to 7%. Normally, the bigger a company gets, the harder it is to grow quickly. But since late last year, Apple and Microsoft are both up about 50%, to a combined value of nearly $5.7 trillion, more than the entire publicly traded technology sector in 2000, when it numbered 1,850 companies.
The 10 largest stocks now account for more market share than at any time since at least the 1970s. Governments see what is happening and are trying to contain it, without success.
The key is to foster more competition and reduce concentration without destroying Big Tech. After all, the giants have made huge investments that are helping bring artificial intelligence to life and possibly fulfilling its promise of increased productivity and prosperity. On this point they look like “good monopolies,” the kind that justify huge profits through contributions to the economy. Big isn’t by definition bad, if it focuses more on innovation than domination, but what is it now?
Government efforts to regulate the sector appear to have done more to consolidate incumbents than allow new entrants to flourish. Rules designed to protect consumer privacy, for example, make it more expensive for tech companies to operate and offer new opportunities for giants to consolidate their positions through lobbying. In just over a decade, US Internet companies have increased their lobbying dollars fivefold to nearly $100 million. Three big tech companies climbed into the top 10 US companies by lobbying spending, with Amazon and Meta now in first and second place.
By that measure they look like “bad” monopolies, the kind that dominate through political influence. In any case, the longer monopolies last, the less likely they are to be good. No amount of contributions they make to society can make up for declining competition and extreme concentration, especially not in an industry that thrives on disruption. The fact that the giants are dominating another wave of technological innovation indicates a deep dysfunction in the system.
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