[This post is part of The McFuture series. An abridged version appeared on Forbes]
There’s soooo much talk about innovation and disruption. You’d think we’d wake up every morning to find the sidewalk is now a river, your cat is a robot, and Kitt from Knight Rider is your car…and your spouse. Yes, change is happening. Amazon is slowly eating retail. Uber snacks on taxi cartels. And Facebook is the John Gotti of media. But what’s more interesting, but rarely discussed, is who controls the tools of disruption and what that means for our future.
This article is the only proof you’ll need that everything is moving towards monopoly, duopoly or oligopoly – all the scary words you forgot from Econ class. And why we secretly LOVE IT! That’s right, We. Love. It.
Start Me Up
Since startups are the toolmakers du jour, let’s start there.
It turns out that startups are Trojan horses. We think of them as revolutionaries when in fact, they’re the farm team for the establishment.
Very few make a profit. Or become standalone companies. Or ‘change the world’. 86% are acquired by big companies.
- Jet.com was supposed to conquer Amazon.com. It got bought by Walmart.
- Dollar Shave club was supposed to rain cheap razors on the masses. They were bought by Unilever.
- Vice is supposed to be the biker gang of news. They’re part-owned by Rupert Murdoch, Walt Disney, and A&E.
So the startup revolution is mostly a story they tell themselves.
Our toolmakers mostly make big business bigger. They’re not changing the balance of power. They’re preserving it.
In 1955, the Fortune 500 was 35% of GDP. Today, it’s 72%!
And 100 companies make up almost half of our entire economy. Think about that. HALF. The President could take all their CEO’s calls in two afternoons!
And they’re using their advantages – cash, protective regulations, scale, brand – to dominate as many of our fancy new technologies as they can.
This concentration is happening in every major industry. In fact, the very idea of competition is fleeting. It turns out, competition is a temporary state of Capitalism. The steady state is monopoly. Here’s what’s happening and why we’ve turned the other cheek.
Watch related video here or listen to full episode below
SUBSCRIBE: ITUNES | ANDROID | GOOGLE PLAY | RSS | THE MCFUTURE WITH STEVE FAKTOR
So Who Owns Disruption in Each Industry?
I broke some major industries into three familiar categories:
- Norming: these industries stabilized into monopolies or “monopoly-adjacent”
- Re-Forming: big industries that are consolidated but have serious flaws that make challenges possible, but not always probable.
- Storming: these are dinosaurs practically begging for extinction.
A. Norming (Monopoly-ish) Industries
1. Banking
In 1990, the five largest banks controlled 10% of banking assets. Today, they control 44%.
Sure, there have been lots of startups in finance. But any that matter, get bought. One that made it was Paypal. It was supposed to revolutionize finance. This is how many companies PayPal put out of business: 0. Others in robo-investing, mobile payments, and crowdfunding will all be acquired or co-opted because finance (and consumer trust) work slooooowwwwww.
Bitcoin was supposed to do for money what the Internet did for porn…and for Bieber. Instead, banks use its technology, , and finance most Bitcoin startups. Revolution, averted.
Why we secretly love it:
No one besides startups wants “innovation” in financial services. I speak from lots of experience. Even executives at big banks, who talk a lot about competition, disruption and innovation, prefer it slow and steady, like Barry White.
Customers DEFINITELY don’t want upheaval when it comes to their money. They crave security, trust, and good service. Most want to sleep at night, not to spend 40 minutes on hold worrying if their brokerage is still in business. Yes, there’s innovation to be had, but the people want it under the safe embrace of companies that won’t disappear when VC cash runs out…or they lose the napkin with their Bitcoin hash. “Is that a ‘3’ or a ‘B’???”
2. Internet Access
| Mobile Market Share as of Q1 ’16 | |
| Verizon | 35.2% |
| AT&T | 32.5% |
| T-Mobile | 16.3% |
| Sprint | 14.5% |
| US Cellular/ Other | 1.5% |
82% of Americans have only one choice of Internet provider. Same as the average North Korean election. And two companies control almost 70% of mobile access. Then, like horny teens, they keep trying hook up. For now, the FCC has forced them to hump the cushions. Not for long as T-Mobile and Sprint complete the 100% oligopoly.
Let’s face it, net neutrality or not, we are owned. Companies like Verizon and Comcast can raise prices or impose data caps at will. They know we’d eat our firstborns before giving up our iPhones.
Why we secretly love it:
Despite these big behemoths, our tools keep improving and prices keep falling. Plus, an ecosystem of MVNOs (wireless resellers) makes it look like there’s competition and provides affordable alternatives. There’s also enough pressure in the ecosystem – iPhone, Google Fiber, messaging apps – to force the oligopolists to innovate. But not so much that competition forces you to get a new provider every six months.
As long as what we really want – Game of Thrones and my podcast – never stop streaming, we’ll think about cable and phone companies about as often as we do plumbing or electricity.
3. Food
The four largest food companies control 82% of beef and 85% of soybeans. Monsanto (now Bayer) owns the genetic code for 80-90% of all soybeans and corn grown in the U.S. And 9 companies own all those colorful logos that masquerade as choices on supermarket shelves.
Sure, the U.N. says small scale, urban, organic farming will save the world. Others praise distributed farm machinery and vertical farming. But none have made a dent. Let’s face it, our hipsters need to work harder. There’s not nearly enough kale growing in their bathtubs.
Why we secretly love it:
For most, food is cheaper and more abundant than ever. Shelf life keeps improving. So do packaging, crop yields and distribution. These innovations have allowed global populations – and our fat bellies – to explode.
4. Military
Five military contractors get 90% of all contracts. When you spend $750B a year on something, are you surprised we have to use it? (Check out this great short documentary on this industry defending its pervasiveness.)
The military tries to innovate, but has little incentive to do it efficiently. The trillion dollar F-35 debacle comes to mind.
Our slow response to cyber-warfare is creating a new group of incumbents like Palantir, whose value will soar from founder Peter Thiel’s early bet on Trump.
Why we secretly love it:
With mounting debt, failing education system, and truth deficit, thank God we have nukes to keep China from taking over our Idiocracy.
5. HealthCare
Hospitals, insurers and drug companies are merging into a handful of giants. There are lots of opportunities for invention and costs efficiency, but few real challengers. Most small players will be acquired to get distribution.
The ultimate irony is, under Trump we might just see a single payer system. Except, that payer will be a private monopoly, forged by unchecked mergers.
Why we secretly love it:
Everyone hates rising rates, expensive drugs, and bad service. And that’s just your opioid dealer!
Truth is, most people who work for corporations – and vote – have been shielded from the horrors of our system’s failure. “The average employee pays just $89 a month for single coverage, according to the Kaiser Family Foundation. But monthly premiums are actually $521, on average — it’s just that the employer is paying the other $432.” – Time
6. Airlines
Ten years ago there were nine major airlines. Today there are four. And each day, that control translates into hemorrhoids everywhere. Tinier seats, longer lines, and cavity searches without a hint of romance.
Why we secretly love it:
Flying keeps getting cheaper, we’re cheap, and cheap is all that matters. How do I know? Ryanair and Spirit should have been bankrupted years ago. They practically make you sit on a rusty spike, surrounded by bird flu refugees, eating pocket lint. So how do they survive? Both Spirit and Ryanair‘s CEOs admit, price is all anyone cares about.
B. Re-Forming (“Challengeable”) Industries
7. Media
Not long ago, three TV networks mesmerized a nation with Gilligan’s Island and a jowly old man introducing The Beatles. Today, scores of half-naked hotties can barely muster a one share or a handful of hipster tweets.
Cheap digital tools spawn countless blogs, podcasts, and grumpy cat videos. Some successfully compete with big networks for our time and advertiser money. Tyler Perry is his own industry… and his own mother.
Clearly, this kind of empowerment must be crushed – with copyright lawsuits, licensing control, and acquisitions. Big media is re-aggregating its fracturing flocks.
Here’s the TV picture as of 2011:
Since then, the trend has continued:
- Comcast bought NBC. And it’s merging with Time Warner to get more leverage with content providers.
- AOL bought Huffington Post, Engadget and Techcrunch.
- Yahoo bought Tumblr.
- Then Verizon bought both of those turkeys – AOL and Yahoo.
- News Corp owns lots of newspapers, publishers, and a piece of the red-hot Vice.
- Even online porn is a monopoly. Yes, your Spank Bank is too big to fail.
- Even major music labels found a way to matter, renewing their grip on music. They get 70% of Spotify’s sales!
A few graduated from challenger to establishment. Netflix and Amazon somewhat threaten cable companies, but also work with them. There’s only so much damage you can inflict when your secret weapon is Adam Sandler.
So far, incumbents are winning, but consolidation is an endless treadmill. The number of possible media competitors is infinity. That’s a lot of acquisitions… Despite their might, even these giants are at the mercy of better consolidators like Facebook and Google. Plus, new technologies let any idiot with a keyboard compete with them. …wait a minute…
Why we secretly love it:
We’ve never been more entertained – or pacified. As long as Netflix never stops streaming and Nabisco never runs out of whatever ungodly chemicals make Oreos so delicious, we’ll be content. It wasn’t until truth itself became a novelty that we even noticed the shocking mistrust of media – and who needs truth when we have dragons!
8. Software
As our lives become more virtual, it’s clear that whoever owns the software, will own the world.
Software is controlled by giant corporations like Google, Microsoft, Oracle, and Salesforce. But more important than who they are is what they are. Most are in the cloud, not on some gadget you own.
When you sign Microsoft’s 35,000-word , you sign away your legal rights to sue if something happens. And it always does. You’re no longer a US citizen, you’re an avatar in Microsoftia. I’m not singling out Microsoft. Every major tech company does the same thing.
Sweet, innocent open source options – like Firefox, OpenOffice and Linux – eventually get smothered by vicious tycoons dressed in harmless hoodies.
But there is hope. Successful open source efforts that protect privacy are out there and software players can rise and fall quickly. Somewhere in that turmoil is salvation – or at least, a few decent upgrades.
Why we secretly love it:
No one wants to know how the sausage is made. Google magically has all the answers at the right place and time. Our phones magically restore all our passwords after an upgrade. Facebook knows exactly which stories we’ll like. And Alexa is always listening…listening…listening…. We don’t care. We fear inconvenience more than our Faustian fate.
C. Storming (New Order) Industries
There are industries seeing a New Order. No, not the depressing 80’s band for cutters. But transportation, energy and education are changing massively.
9. Energy
The hippie dream of living off the wind, the sun, or hummingbird farts – is real. Thanks to heavy subsidies and cheap Chinese solar panels, clean energy investment and adoption is crushing fossil fuels in terms of growth. And consumers are eating up electrics, like Tesla.
Of course, utilities and oil companies aren’t just rolling over. Many are instituting fees, taxes, and regulations to turn back the inevitable.
As oil prices stagnate, oil sheikhs are down to their last tub of concubines. And fossil fuel companies expect a wave of consolidation.
But free, unlimited energy is an unstoppable force – as long as we can see the sun. That only leaves Julian Assange and X-BOX addicts burning carbon.
10. Education
We have $1.2 trillion in student debt. Good jobs only exist for those with four year degrees, but that’s less than 30% of the population. And 50% of graduates work in jobs that don’t require degrees. Plus, almost 40% of college students are virgins. Clearly, traditional education is failing.
Primary and secondary education still perversely torture kids – gluing them to desks all day and having them memorize facts, like it’s 1953. They’re preparing kids for a world that only existed when America was great again…or something.
Online courses, data, and candidate screening tools will allow us to give people the education they need for the price of PokePoints.
(I’ll discuss this on an upcoming episode of The McFuture podcast with special guest Rick Levin, the CEO of Coursera and Yale president for 20 years.)
11. Transportation
Taxis have been awful forever. In New York, they smell and crush your knees if you’re over five feet tall. They assault you with ads and their payment terminals have the grace of The Elephant Man Dancing with The Stars.
Uber, Lyft and others came along with a better product. Their soulless drive to succeed and piles of investor cash are a killer combo. Despite the protests and the surge pricing, the people have spoken.
There is a catch. Uber, The Challenger, is quickly becoming Uber, The Incumbent. Taxis and others will challenge them, but scaled networks with low margins are hard to beat.
The same can be said of resistance to electric cars. Tesla will eventually defeat crony laws that force you to use useless dealers. Eventually, autonomous cars will put transportation in the cloud for you to rent, just like your Gmail. My money’s on current incumbents dominating self-driving cars, too.
Where is this all going? What happens next?
Big companies are re-asserting their powers by taking control of new innovations developed by their new R&D department, startups.
Some new power brokers will emerge, but they’ll quickly adopt the same tactics – lobbying, fraternizing and placing alums in public service to lock in subsidies, protective regulations, and tax loopholes.
What’s even more shocking is how much faster new power players will get to monopoly than their predecessors. Almost every new category created will be winner-take-all. Amazon, Google search, Uber, Facebook, eBay, Netflix are – or soon will be – THE dominant winners in their segments. They create powerful network effects and scale so fast they make huge aggregate profits from lots of tiny transactions. That makes it impossible for low volume, high margin competitors to challenge them. And why would they? Millennials love the spoils of these new monopolies and they’re less entrepreneurial than past generations, driving new business start rates to historical lows.
For better or worse, that means more and more of our lives will depend on a few massive, private platforms. They’ll have the power to silence – or cut off – whomever they don’t like from essential services and effectively, certain freedoms. We haven’t even begun confronting that reality.
So can we be free if our tools are not?
The answer is maybe.
Our passive acceptance of consolidation shows we don’t crave freedom or competition as much as we crave certainty. Steady, predictable monopoly power offers exactly that. Slowly, it smothers that rugged American individualism we grew up idolizing. What takes its place is a New American Dream. (Hear it on The McFuture podcast or video below.)
In this new America, we’ll embrace a strange paradox: Universal platforms like Facebook, Google, and Snapchat will strip us bare. First, by exposing our hidden selves to hidden third parties. But eventually, to each other – through volumes of data collected, hacked, or selfied. As we huddle together, naked and exposed, the collective will re-assert its powers. People will be the counterbalance to monopolies that competition and government never were.
But remember, it takes big, fragmented groups forever to organize – and master their new powers. Hell, it took Superman like 15 seasons on Smallville to figure out how to fly.
Sign up to The McFuture podcast, newsletter, and Facebook group as I unravel where this is all taking us. You will not be disappointed.
Also, watch my video on this topic:
UPDATE 1: Break Em’ Up!
In late February 2019, a was announced to look at breaking up tech monopolies. Here’s a quick sketch of how that might play out:
I think it will shift consolidation down one level to data platform service providers. It’s similar to what happened when ad networks like Google’s Doubleclick started attracting pubic and government scorn. They went underground, with ad trackers embedded across multiple sites, silently building profiles of you to share across multiple customers.
A detailed argument on the latest The McFuture podcast on why this (or something like it) is inevitable.
Want a more detailed exploration of this theory? Sign up for the newsletter on this page to signal interest!