
Why Do the Biggest Companies Keep Getting Bigger? It’s How They Spend on Tech - btomblin
https://www.wsj.com/articles/why-do-the-biggest-companies-keep-getting-bigger-its-how-they-spend-on-tech-1532610001
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boxspam
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](https://en.wikipedia.org/wiki/Matthew_effect)

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reubenswartz
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...](https://www.amazon.com/Scale-Universal-Innovation-
Sustainability-Organisms/dp/1594205582)

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baccheion
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...](https://www.getflow.com/blog/optimal-team-size-workplace-
productivity)), 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.

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phendrenad2
Uh, the article is about revenue, not headcount.

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baccheion
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.

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neonate
[http://archive.is/B9klj](http://archive.is/B9klj)

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raldi
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"

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candiodari
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...](http://www.erpsoftwareblog.com/2012/11/why-does-microsoft-hq-use-sap-
instead-of-microsoft-dynamics-erp/)

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

~~~
djrogers
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.

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phendrenad2
“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.

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ljw1001
It has little to do with tech and much to do with market power, political
influence, and scale economies.

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kyle_v
came here to say this. economies of scale

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poulsbohemian
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
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.

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olliej
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.

~~~
devonkim
This is not quite correct in any company I've seen besides companies that were
literally about to go under (and to try to save money to pay off creditors
more or less) - companies that are struggling to grow cut spending in order to
free up revenue to pivot into more lucrative revenue streams. The usual
innovators' dilemma problems historically happened on much longer timelines
prior to modern software and even still plenty of businesses are basically
coasting on reputation alone (it's taken McDonald's how long to really embrace
technology? Now take a look at Chik Fil-A and how they've built their brand
and user engagement combined with a solid, distinct product suite). Most
companies find a business model and fail to grow I've noticed because their
leadership is simply... not very innovative. Everyone and their dog knows to
cut costs and to acquire companies to get into new customerbases / markets
when you've got the means, but it takes a bit of guts / risk-taking by leaders
to focus and _execute_ on established companies on key initiatives such as
Apple with the iPod in the early 2000s. Most companies (especially b2b ones
that are the typical company IMO) are basically lifestyle companies that exist
to give leaders a cushy living and a great deal of them will simply sell their
companies instead of working their tail off to try to make things work. For
those companies, by the time business starts to turn bad it's basically over
and you're just fighting against the inertia that has already built against
you (see: Sears, K-Mart). This isn't to say that running companies is easy,
but many, many businesses are pretty darn low-risk (public storage facilities
is a great example) and the industry is very safe from disruption by
technology either through past rent-seeking or by intrinsic factors.

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

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nopreserveroot
s/Tech/Lobbyists

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

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

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jadedhacker
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.

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true_tuna
I have no idea what you’re talking about

