Lessons from Tech Titans

We can all learn from the latest crop of technology conglomerates

It used to be that conglomerates were created to diversify income and offset seasonal or niche businesses. That, or simply because they could. Traditional conglomerates often felt like a scaled up version of a local business owner who starts with a shop, then opens a restaurant, then a boutique hotel - investing in property and other local businesses along the way. But a new breed of tech conglomerates is changing the game.

The largest technology groups are hard to ignore. Mostly because their products and brands are so pervasive that we all use at least some of them. But, also, because they have become so big.

Analysts are predicting that Apple will soon be worth over $3 trillion. Alphabet, parent company of Google, is worth over $1.5 trillion. And Amazon, the Walmart of the Web, is worth $1.7 trillion. Walmart is worth less than $400 billion. Even Microsoft is valued at nearly $2 trillion.

The tech industry is really two industries. There are the five giants, which operate at an almost unimaginable scale, and then there’s everybody else.

Alphabet (Google), Amazon, Apple, Facebook and Microsoft all reported first quarter earnings last week, and some of the numbers that came out showed how dominant they are. In many cases, relatively small business units buried within the giants are generating more revenue than entire big-name tech companies.

Typically in business, companies run into the “law of large numbers,” and growth rates slow. This was one of the reasons why ‘traditional’ conglomerates were created - the theory being that it was easier to grow a group of smaller companies than to scale just one. Virgin Group was formed on that basis.

But the nature of technology platforms turns that law on its head. When a tech business achieves truly massive scale — and all of these companies have multiple businesses that reach more than 1 billion customers — it’s easier to grow by collecting additional streams of revenue from a massive installed base than it is to invent new business areas from scratch or steal customers from bigger competitors.

These giants can take the data from their already-massive operations to learn about their customers and sell them new products effectively. They can leverage existing customer relationships to sell add-on products. They can use their cash flow or stock to buy promising new upstarts and, if they decline, clone them. Alphabet gained $4.5 billion in Q1 alone from an increase in the value of investments it has made in start-ups over the last decade, as many of those start-ups have gone public or raised new rounds at dramatically higher valuations.

These five tech conglomerates combined spend more on annual R&D than many of the G7 industrialised nations, including the UK.

The secret to their success rests on the fact that each of these companies devised ‘platforms’ - not just products. Microsoft invented the PC operating system, which, thanks to IBM, swiftly became an embedded platform enabling them to make money out of apps. The O/S was the trojan horse - the apps the cash. Google did the same with the search engine. They got to control the browser front-end by offering the most universal Web utility and then sold a vast amount of classified ads alongside it.

Amazon's e-commerce platform combines warehouses with distribution systems and massively scalable e-commerce technology. The company hit new scales when it offered this e-commerce platform to other businesses who wanted to sell goods through the Amazon marketplace. Today, just one of the components of the Amazon platform stack, Amazon Web Services, generated more revenue in the first quarter of 2021 than all of Oracle did in its fiscal third quarter, which ended 28 February.

Facebook turned social interactions into a Web platform for ad dollars while Apple managed to make the device its platform. Today its growing roster of fully integrated devices power huge businesses. The Mac still delivers an entire ecosystem of services for tech developers and designers. Apple’s iPhone business, meanwhile, is truly in a class by itself — it generated more revenues than all of Microsoft, as has been the case for years.

Apple’s lowly gadget businessdubbed “Wearables, Home and Accessories” and consisting of Apple Watch, audio add-ons like AirPods and HomePods, and other home devices like Apple TV, booked more than $7.8 billion in the quarter ended 31 March. That’s more than HP’s laptop business generated in its latest quarter, which, unlike Apple’s quarter, encompassed the holiday buying season. Yet it accounted for only 8.7% of Apple’s overall sales.

Amazon and Apple posted record revenues in recent months, with both companies topping $100 billion in quarterly revenue for the first time in the final quarter of 2020. If they continue recent growth rates they might approach half a trillion in annual revenues as soon as this year. Such revenues would be larger than the GDP of many countries.

These tech conglomerates have dominated because they didn't just think about setting up a store - they worked on building a shopping mall that could house their branded shops while at the same time renting space out to other retailers. The mall being the platform and the shop the app.

The difference being that they figured out how to get us to register our data with them every time we visit the ‘virtual’ mall. These aggregated customer insights keep them one step ahead of the competition.

What they understood over time was that being a platform owner whether it was a social platform, an e-commerce platform or a device platform, meant that you could keep growing just by enabling the next generation of branded apps while also supporting third party products. The longer your platform sustained the more new apps you could release. As you spot a new trend - you launch a new app. Just like a supermarket launches own-label products.

By being the platform enabler you enjoy long term monopoly benefits and the ability to charge above normal economic rents.


Platform, or ecosystem thinking, can be applied to any sector and any market. The NHS is the healthcare platform for the UK. They hold data on tens of millions of patients and they control healthcare provision and medicine flows across the British isles. The New York stock exchange is the enabling platform for a long tail of financial services firms and individuals who make money from its listed entities.

Movie studios provide a platform for artists to make blockbuster movies. Publishing companies provide a platform for writers to monetize their book writing skills. The diary provides a platform for billions of personal stories to be recorded and for history to get written.

So which one are you? Single-use shop or shopping mall owner? Stand alone app or ecosystem enabling platform provider? The latter is a great deal more complicated and far riskier. But the big five tech conglomerates have just shown us why it might, in fact, be worth the risk.

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