Why Do the Biggest Companies Keep Getting Bigger? It’s How They Spend on Tech

https://www.wsj.com/articles/why-do-the-biggest-companies-keep-getting-bigger-its-how-they-spend-on-tech-1532610001

by btomblin • 8 years ago

100 32 8 years ago

neonate• 8 years ago

raldi• 8 years ago

Clickbait antidote: "IT spending that goes into hiring developers and creating software owned and used exclusively by a firm is the key competitive advantage. [...] Today’s big winners went all in"

nopreserveroot• 8 years ago

s/Tech/Lobbyists

poulsbohemian2• 8 years ago

This is a really strange, naval-gazing article. "Company builds tech needed to serve their business." News at 11. I keep looking for some nugget of actual wisdom, but haven't found it yet. There's a point about competitors trying to build from scratch + competitive advantage of being able to extend a technology into a new line of business, but none of that is a particularly new concept; incumbents who are smart enough to move into new businesses and well-capitalized are hard to beat, color me shocked.

bognition• 8 years ago

Sure nothing here is "new" but its amazing how many companies/people/organizations are flabbergasted by a lack of growth whiles not not investing in themselves.

olliej• 8 years ago

There seems to be this weird obsession in a lot of the corporate world that the way to grow is to cut spending. This increases profit% in the short to mid term, at the cost of actual absolute profit, especially in the longer term.

Shrug.

poulsbohemian2• 8 years ago

Agreed, but that's a different nuance than what the author and other posters here seem to be stressing, that it isn't just reinvesting in your business, but _writing your own software_ that is creating this magic multiplier. That's the part I think is an unsubstantiated stretch. Possible, but I don't see the data presented in this article.

LeifCarrotson• 8 years ago

*navel. Looking at one's own stomach, an internally-focused meditation. Nothing to do with the sea :)

But yes, it does seem rather obvious.

However, I do think it's illuminating in that this business practice is really only relevant to big companies. It's more effective the bigger you are. If you can have a team of a dozen programmers, testers, and sysops engineers employed full-time to make 10,000 other people more effective, your company will be more efficient than mine. A small business will be much better off spending a couple hours creating a website on Squarespace and calling it good, because the ROI just is not there. Software scales, and this makes big companies bigger.

perl4ever• 8 years ago

"Software scales, and this makes big companies bigger."

This seems less obvious the more I think about it. You are saying proprietary home grown software scales. You can just as well say software provided by external sources scales, which is why you don't need a big company with a lot of employees. If you can argue it both ways, then the real question is what tips the balance? Maybe we just have a bimodal ecosystem where the big get bigger and the small get more numerous.

ABCLAW• 8 years ago

"Company builds tech needed to serve their business."

From a tech worker's perspective, this seems super obvious, because that's how they generate their value in the market.

But this actually isn't "News at 11" material, because in the majority of non-engineer dense industries, companies purchase tech solutions when they become available and aware of them on the market rather than build out what they need when they need it.

Those are tremendously different modes of execution. When Goldman Sachs ramped up their spending on developers to produce proprietary solutions, for instance, it was a newsworthy development.

didibus2• 8 years ago

I do believe the idea to be a tech company first, and a wtv else company you actually are second is quite unique and novel and not widespread.

It's very different to say "We build things that make X product" or "We build things that provide you with service Y". Then to say, "We make product X" or "We provide you service Y".

We clean floors...

We build floor cleaning technology that we then use to clean your floor more quickly and for less money.

It's very different. It means you'll need to really invest in tech, hire engineers and scientists, put money in R&D, understand how technology is built, the cost of it, how to iterate on it, and leverage it. While at the same time integrating your business in actively using it, driving the tech based on the exact concrete needs of the service or product you target, etc.

This is hard to not half ass, to really commit to this mentality, and have everything designed around it is hard.

It's also higher risk, higher reward. If you fail to build useful tech that does end up delivering a better product or service to more people for less money, you might lose out and have ended just spending all your money on trying. If you succeed though, your growth will be massive, and your tech an unprecedented competitive advantage, you'll get bigger and bigger and eat away at your competition. And then an article will say, why do big companies get bigger, because they invest in tech.

candiodari• 8 years ago

It's not even true. The "biggest" companies still use the same software (SAP, DB/2, ...) that other companies use for finance, legal, logistics, ...

Example article: http://www.erpsoftwareblog.com/2012/11/why-does-microsoft-hq...

(not sure if still accurate in 2017, but I think it is)

djrogers• 8 years ago

At a company the size of Microsoft, the software they use to run their corporate HR and financial analytics on is of little consequence - the key is the software/platform that they sell to their customers, IE Azure, AWS etc.

The amount of resources that go in to SAP, while large, are a rounding error compared to the resources spent on building a compute platform.

true_tuna• 8 years ago

I have no idea what you’re talking about

boxspam• 8 years ago

I wonder if there is a deeper structure/nature to business growth and popularity, something akin to the Matthew effect [1] ("to everyone who has more will be given") or power laws.

People have limited energy to store and rank objects, so they settle on one or two per field/subject, and all future energy goes into maintaining that categorization.

An example would be "Hulk Hogan", even though I am not interested in wrestling, I do know that name. If I am similar to others, such as journalists, this would explain why that name is getting bigger and bigger: people just add on energy on the current most popular choice.

[1] https://en.wikipedia.org/wiki/Matthew_effect

reubenswartz• 8 years ago

You may appreciate the book Scale[1], by Geoffrey West. I don't know if I completely buy all aspects of the book, but he looks at organisms, cities, and companies and suggests that there are certain fundamental scaling properties of these collections. IMHO, there are some fascinating ideas here, although the book seems more like a collection of papers with a bit of editing.

[1] https://www.amazon.com/Scale-Universal-Innovation-Sustainabi...

mindcrime• 8 years ago

It's mentioned in the above WP article, but see also: Preferential Attachment. It's a notion from Network Science that helps explain this kind of phenomenon.

https://en.wikipedia.org/wiki/Preferential_attachment

jadedhacker2• 8 years ago

Big companies get bigger because of market consolidation. Competition is a lie. News at 11.

marcosdumay• 8 years ago

Competition is so real that big companies spend large amounts on market consolidation, just to escape it.

jadedhacker2• 8 years ago

They still escaped it. Competition was the driving force for companies to become big and monopolistic. The "intended" effect of the market resulted in the opposite.

nickpsecurity• 8 years ago

Copyrights, patents, and lawyers weakening or blocking competition helps. Then have buildings near top colleges to pull their talent. Then, throw in some labor and price fixing plus other cartel behavior in some sectors for the win. :)

There's a lot more to it. These just get ignored by the media and studies the most. The corporate media is doing similar stuff. No surprise they'd downplay it. Author covered talent snatching but misses most of the rest. Even the too hard to clone requirement comes from IP law (trade secrets). And a lot gets cloned anyway.

baccheion2• 8 years ago

Large companies get larger due to the inefficiency of larger companies. It's like trying to get another 5 mph after hitting 200 mph.

After hitting 201-500 employees, it becomes almost impossible to avoid politics, bureaucracy, wasted time communicating, oversight, management, etc.

Based on a graph that showed peak productivity with a team size of 6 (https://www.getflow.com/blog/optimal-team-size-workplace-pro...), one layer of management results in 43 employees (1 CEO + 6 managers/executives + 6 * 6 individual contributors). Two layers results in 259 employees (1 CEO + 6 executives + 6 * 6 managers + 6 * 6 * 6 individual contributors). More than two layers adds more inefficiency/employee than is taken away and such a downward trend continues.

If a fictional 4.6 team members is used, those numbers become 26.76 and 124.096.

phendrenad22• 8 years ago

Uh, the article is about revenue, not headcount.

baccheion2• 8 years ago

Increased revenue among larger companies is usually due to either having a monopoly, or financial engineering. In the case of larger tech companies, it's a maintained monopoly (and maybe financial engineering) combined with a massive increase in the number of online users.

ljw1001• 8 years ago

It has little to do with tech and much to do with market power, political influence, and scale economies.

kyle_v• 8 years ago

came here to say this. economies of scale

zavi• 8 years ago

Heavy-weight regulations like GDPR also help to keep status quo.

phendrenad22• 8 years ago

“Companies that got big, continue to get bigger, instead of instantly stopping once big. News at eleven.”

I’m only half-joking. The companies are big to begin with because they did something better than their competitors. Also they can attract and afford to hire the best in key roles.

Why Do the Biggest Companies Keep Getting Bigger? It’s How They Spend on Tech

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