The Tech Industry Is Dead! Long Live the Tech Monopolies!

Google and Facebook may look and talk like tech companies, they may want you to think they are still tech companies, but in reality, they have morphed into something else. To paraphrase an old Monty Python sketch about the difference between live and dead parrots, they are ex-tech companies. As of Sept. 18, 2018, they are communications services.

The transformation of the tech industry has occurred before our eyes but so gradually and at such a great scale that unless you zoomed all the way out, it was easy to miss. The culture of Silicon Valley and the early technology industry that produced Google and Facebook was symbolized by the proliferation of “startups,” agile innovators searching along many different paths for social advances, technical breakthroughs, and great fortunes. While that version of “tech” is now largely extinct, its progeny are more powerful than ever. The most successful companies from the tech boom, measured by their ability to rapidly achieve tremendous scale, ate up all of the competition starting with their tech peers before moving into media and other sectors. What we’re left with now are a tiny number of megalithic communications platforms that have outgrown tech by conquering much of the larger economy.

The beginning of the end of the “tech sector” as we knew it, is not merely the opinion of your humble technologist. The official bell was tolled by Wall Street, in the form of the Global Industry Classification Standard (GICS), which determines how companies are classified within stock indices. As of last September, in the largest reshuffling by GICS since its inception in 1999, $2.8 trillion of stock, or 10 percent of the overall market cap of the S&P 500, was reclassified, as Alphabet (the new name for Google’s parent company) and Facebook were moved out of the Information Technology sector.

The tech sector proper, called Information Technology, gets to keep Apple, Microsoft, and Intel—companies that are more focused on technological infrastructure (hardware and software) rather than online services. But tech lost two big names. Alphabet and Facebook move to the new Communication Services sector, which also absorbs the demoted Telecommunication Services sector including companies like AT&T and Verizon as well as consumer media companies like Netflix, Disney, Viacom, and Comcast. But the sector could very well be called the Alphabook sector because Alphabet and Facebook make up nearly half of its market cap (44 percent). As for Amazon, never really a tech company to begin with, it stays in Consumer Discretionary where it makes up a colossal 23 percent of the sector’s market cap.

So if the “tech sector” as we once thought of it is now a figment of the past and has melded together with the old communications giants, what does that mean for our present economic and political system? In the wake of the tech sell-off in late 2018, in which eight tech companies lost nearly a trillion dollars of their collective value, financial strategist Vincent Deluard told the Financial Times earlier this month that: “the reclassification was important from a collective realization perspective…. 2018 was the year when the notion that technology would solve all these problems—and that there were these visionaries who would make the world a better place—crumbled.” The bloom clearly is off the rose for “tech” as an abstract concept. Going forward, smaller internet and new media companies will likely not attract the premium valuations they would have gotten in the past, as the recent major layoffs and shrinkage in companies like Buzzfeed and the Huffington Post, and across the new media sector, attests.

Yet a converse interpretation holds as well. The reclassification may mean that “tech” is no longer the unique ultravaluable property we’ve come to know, but that is far, far less important than the fact that a handful of companies that once constituted the core of the tech sector have extended their tendrils across the larger economy. If Alphabet and Facebook were simply two players in a large ecosystem, or if Amazon were just one among many retailers, then one could say that tech had dissolved into the larger economy. But since these companies dominate their sectors, forming an oligopoly over much of the consumer internet, it’s more the case that “tech”—or more precisely, a handful of tech companies—have taken over. These large companies lend themselves to reclassification because in truth they straddle multiple sectors, horizontally and vertically.

The designation of “Communication Services” recognizes that the two internet titans, Alphabet and Facebook, are fundamentally about the same things as Verizon and Disney—but those things aren’t really “social communication and information,” as is claimed in the marketing language. Rather, they are subscriptions and advertising. “Social communication” is a euphemism for platforms that provide a medium for communication while inducing forms of dopaminergic behavioral dependency and encouraging their customers to evangelize the platform. “Information” is an overly vague term for “information that people and institutions are willing to pay for,” whether it’s a Netflix subscription or, for advertisers, a customer conversion.

The difficulty posed by Communication Services is that these large, hypernetworked companies are volatile, not just in their stock valuations but in their supposed utility. The stagnant valuations of AT&T and Verizon reflect the well-defined nature of their networks. But the valuation of Netflix’s content-delivery network is far more speculative and for all of Facebook’s success we are even less certain of what the demand will be for Facebook’s services (to users or to advertisers) even a few years from now. Alphabet’s advertising network is more distributed than Facebook’s, yet it also depends strongly on the centralized platform of YouTube.

The fortunes of these companies all depend on their ability to grow their networks to orders of magnitude that didn’t exist 20 years ago. From the macro perspective, YouTube, Netflix, Facebook, and Verizon Wireless are all different forms of the same thing: not technology or media, but networks. You may choose between an Android and an iPhone because those are conventional products, but you do not choose between Facebook, Google, and Netflix. You become part of their networks even if you don’t use them. As these hypernetworks have become closer to monopoly utilities than overgrown startups, they have become the epitome of Henry Adams’ spun-up dynamo, which continues expending all the energy it has because to stop would be to die. Some days it sputters, and one day it may stop.