The Winds Are Changing
Ships in Distress off a Rocky Coast, 1667 - Ludolf Backhuysen
Antitrust- its honestly a topic that I spend way too much of my time pondering on. I could do a five hour Joe Rogan podcast about the history of antitrust law in the US, the current tech monopolies, double standards, etc.. I don’t plan to do anything about it but, I do like to worry about it. For someone who has really overthought this- I was wrong about these companies becoming a permanent fixture in our lives. The winds are changing. Maybe slowly but they are changing. No, I am not talking about Google being declared a monopoly. No, I am not talking about the EU making Apple allow third party app stores. I am saying that maybe, just maybe, the longest business cycle in modern American history is coming to an end. Just to be clear, none of these are going to zero or anything, they will just play a way less impactful role in the average persons life and wallet.
Apple
Brand Positioning
Apple is the worst of them and they seem to be holding onto their control over the ecosystem the tightest. I love that word by the way… ecosystem. We’ll come back to that word later. Apple’s key competency is convincing it’s customers that a bad thing for them is actually good. For example, isn’t it great that you just kind of hold up your Apple Watch to your iPhone and it just kind of knows how to pair and gets all of your photos, contacts, etc..? Well, at no point in that process does it allow you to pair over a generic bluetooth connection to any other device like an Android phone. The word ecosystem, at Apple, means fully integrated. I would say it means selectively compatible. I am old enough to remember when getting a Mac meant you just expected to have a ton of software not work but you dealt with it anyway for the experience of having a clean Unix operating system with all of the comforts that Apple would ship with the OS for free. It was fine and everyone understood that you were making a trade off. Fast forward from 2009 to around 2016 and now, something being incompatible with an Apple product was a feature not a bug. Blue bubbles are better than green bubbles. You can text other iPhones from your mac. Facetime is iPhone only. I could go on. I think its actually a few things they do that allow them to build this reputation among consumers. Something I have witnessed first hand is that Apple is a luxury hardware and services company that has positioned itself as name brand or, as Prof. G puts it: “Toyota volumes at Ferrari margins.” Most people have the idea that Apple is so far ahead of everyone else, that these other companies could make green bubbles better, they just don’t because they are so bad at innovating compared to Apple. Apple refusing to adopt a better text messaging standard for a decade should constitute an antitrust probe on it’s own but that’s a whole other blog post. I would also argue that it really didn’t help the other brands in computing to go and copy Apple’s aluminum unibody design language for their products. When Microsoft, Samsung, Dell, and others all started shipping PCs, phones, and tablets made of aluminum, their products all just started to look like Apple knock offs.
The App Store
The App Store is such a fucked concept for me. On the one hand, I actually do think it’s a win for consumers. I am old, so I remember when it was just expected that on the computer you own, you could just download an application off of a website somewhere on the internet and, run it on your computer. There was a lot of malware online and consumers really did not feel great about paying a website for software. (Unless it was a game) The issue wasn’t the value exchange. It was transaction itself. No one really knew what sites they could trust or who made it. Like yeah the site would have some company associated with it but it’s not like you could go to that developer’s store page or something and see reviews on all of their other software. Apple (…mostly and kind of Linux and Valve) changed that forever. The conversation went from “trust me bro, I run it on my computer” to “trust apple, they have a real person review every app.” Yes.. the real person part used to be true in the first 5 years of the App Store. This meant that a single developer working by himself like Marco Arment could ship an app like InstaPaper and it be a monetary success for him. Another issue with installing stuff on the internet is that it becomes impossible to find stuff. Like how many sites have you been to where you have to hunt for the actual download link? The App Store is great for these reasons and so it saddens me to see Apple treat it’s users the way they do around installing software.
Some software should just be free. Some software should hook into the OS at a deeper level than an application. You have both of these on Mac because the Mac allowed for this when incompatible software was a negative thing. When we are talking about software on an Apple platform, Apple is very anti anything that’s not on the App Store. The main driver here is the 30% cut they take from any non-physical purchase. They have other motives though. Remember my watch example from earlier? How come Apple’s accessories pair and have functionality at the OS level? Why can’t my Sennheiser headphones pair like that? Apple’s walled garden approach will get them in trouble with regulators sooner or later but that doesn’t matter because the winds have changed.
Compatible via Abstraction
I really thought the world would go more Cyberpunk- you know, four companies control all the high margin industries that matter and if you want to be an entrepreneur, you can still set up a taco stand! What’s funny is that it isn’t the regulators waking up to the realization of 10 companies suffocating the ecosystem, its the markets realizing some of these may have run out of gas. What has saved us for the most part is the web. Specifically technology like META’s React native that I would equate to being like the US government making the Tor browser so that users in other countries could jailbreak their totalitarian internet restrictions. Browsers have come so far, in that, they are basically their own operating system. With stuff like WebGL, server-side rendering, and React Native mobile apps, the operating system doesn’t really matter. I use Notion all of the time and I wasn’t bummed at all to find out that they don’t have a Linux client because, the web app is just that good. Companies that make use of React Native or libraries like it, don’t have to go through Apple to ship updates because all of the content of the app is dynamically served like a web page.
Another thing I want to bring up is that the generation beneath me.. so mostly children age 12-18 (I have two brothers in this age group), don’t really understand why certain things aren’t compatible with each other but will always opt for the thing that is compatible (eg. crossplay in video games, discord, social dms, etc..) with whatever their friends have. I think this is primarily because Apple really failed to make the same appeal to this younger generation of kids so they don’t really see Apple products as being a status symbol in the same way that my generation did at that age. I think this has a lot to do with the cloud infrastructure they grew up with like Chromebooks where your local hardware’s speed really doesn’t matter as long as you have an internet connection. I would liken it to sort of how my grandparents’ generation really admired cars as a lifestyle choice and a personal expression. It’s not that silver glass bricks or corvettes aren’t cool anymore, they are, it’s just out of the zeitgeist in modern culture.
When you add the abstraction layer of the browser for the operating system and the abstraction layer of the cloud for the hardware, your choice of device or platform doesn’t really mater. Apple is sort of having to come to grips with this right now and Wallstreet isn’t happy with their progress. The iPhone has stagnated. Even if the iPhone never changed again for the next 10 years, Apple used to be able to block updates to certain apps after a certain point and basically say: “If you as the developer want to keep supporting this old iOS version of the app, you need to branch that completely off into it’s own thing because our new API breaks all of those changes and you really don’t want to be shipping on that OS anymore anyways because of security.” A new iOS version meant that they could sunset older iPhone models and push customers to buy the new supported models. Which if you think about it is a really scummy practice even if you just drop the monetary hit to consumers from the picture. If your bank is branchless, ie. you can only bank on a phone or computer, then Apple technically has the ability to deprecate that even if your phone works fine. This is BS because I really believe that the iPhone 6- onward is more than capable of drawing text to the screen of what your bank balance is and let you execute transactions. None of that is a high-compute workload.
The ability for a software developer to target React Native and just issue updates to the app with out triggering an update download on the App Store was revolutionary. I feel kind of silly for missing this nuance all those years ago. You know, hindsight bias and all that, but Apps have basically always been webpages and UI elements have basically always been composable, so downloading a webpage really quick and then saturating the UI with the new data, isn’t that big of an evolutionary leap. Webapps basically are unleashed versions of normal apps that don’t have the same content or payment restrictions that normal apps do. It is, for this reason, Apple tried to ban webapps altogether.
Apple is the one I wanted to start with because they are really the one’s that I thought had this the most locked down. In my mind, Apple was running the strategy that everyone was trying to copy:
Own the hardware
Make a monopolistic storefront
Tightly control the hardware and software experience
Use marketing and brand image to head fake consumers into thinking the ‘other guys’ just aren’t as smart or aren’t trying hard enough
You can see this with Playstation, Xbox, Quest VR, NVidia GPUs (CUDA), Tesla, etc.. but that hasn’t been working for Apple lately… and more importantly, you can see them making concessions in parts of their business as they seek growth. For example: their services business is largely cross platform: music, tv, etc..
The crazy part is that I don’t think that this model is broken actually. Like, lot’s of consumers don’t really understand webapps and are more than happy to pay the 30% Apple tax on the App Store. I think Apple actually saturated their entire market. I think that the iPhone and the products that hook into it, are really good and so the addressable market was just really big and now I think Apple has it. If they want to keep their valuation multiple that they have, they have to keep growing, and short of just new consumers being born, I don’t really know where they are going to find it. It’s not an their current ML strategy… I’ll tell you that.
Microsoft
I am rage fueled tonight, so my second piece is on Micro$oft. If Apple was a regular dog pretending to be an emotional support dog so that he could get an anti-trust waiver…(I know I am stretching this analogy) Microsoft is a 2000 lb bison eating everyone’s food at the restaurant. Its just so plainly a vanilla monopoly that no one wants to address because its huge and mostly just eating the salad no one was going to eat anyway.
I have to use Teams, Outlook, and Excel at work everyday and it pains me at how slow and worse it gets consistently. You’re probably thinking well why don’t we just switch to Notion or Slack or some other software suite that doesn’t crash or disappear randomly. See, we would, but MS Office is ubiquitous and they have made a copycat product of just about every productivity tool that exists, just so that it can be raised as an alternative. Here is why that matters: I like Notion. They care a lot about the user experience. They want technical and non-technical audiences to have a good time and they put a lot of effort (that is easy to see btw) into making that work. So in a corporate environment, if you want to use something like Notion or Tableau or Slack or whatever… The IT team can say welllll… we already have MS Planner and PowerBI and Teams Teams (dumb name). Are any of those as good? Of course not. Do they do the thing you need? Not really but, they do some stuff that you need and, why don’t you just use excel for that complicated API part anyway?
Microsoft has already been to court for bundling a browser with their OS and lost. Not only do they still bundle a browser they bundle tons of stuff, all of the fucking time, no one is asking for. This way, Office 365 has so much VALUE that you won’t need anything else! It’s its own kind of second mover advantage where you make crappy versions or buy the actual version of everything everywhere and as long as it fits into your revenue model somewhere, you get that customer for life because, now they start using your other knock off stuff.
Another example I really want to highlight of Microsoft being a Buffalo in a border collie’s clothes is the Activation/Blizzard ($ATVI) purchase. Not only did they already own Bethesda, who was considered a huge influential publisher in the AAA gaming space, they touted being so outmatched by Sony and Nintendo on console, as a reason they should be able to buy $ATVI. This is bullshit for a few reasons. Firstly, they have enough cash on their balance sheet to buy $ATVI, Sony, and Nintendo. The whole thing could just be over just like that. Secondly, their consoles aren’t selling because they fractured the user base and mixed it in with the PC platform. Go and put Windows gamers in that comparison and tell me that Microsoft is still losing. Lastly, it is bad enough that Microsoft makes knock off versions of everything but they go and Microsoft-up (verb) studios who where already good at making a certain thing. Like did Arcane Austin really have to die? What where they doing making a multiplayer horde shooter MMO? That was soooo not their core competency. How does a studio make 4 bangers in a row over a decade and then get shit-canned on number 5 because they had to attempt a whole new genre no one had experience in?
The fall
Microsoft is a different position than Apple. I do see parts of their strategy they could use to grow from here. They have been on and off leading in generative AI around software development. If Microsoft finds a way to create the AI composable JS frameworks or the ML Agents that go away and do tasks and then push a commit to a Github repo, then maybe their top line can continue to grow. That said, they did just break up with OpenAI so it’s not looking great.
Part of their problem is that they actively destroy value. Like, I would be willing to bet any of those studios I mentioned (especially Arkane Austin RIP!) are worth less now then they were when acquired. Places like Salesforce, (that have their own predatory practices that I haven’t experienced first hand but have heard of) are actively eating into Micro$oft’s market share in every B2B segment so it’s proof that the trend of enshittification can be bucked.
U-boat under attack - Paul Wright
I admire Google’s business culture and approach to hiring/promoting. Google got lucky in acquiring YouTube because its basically the golden goose for their business. I looked it up today and was shocked to see that Youtube only makes up ~10% of their revenue which equates to around $36b in 2024. For comparison, Netflix brought in $39b in 2024. Do you know what is really awesome about that revenue? It scales perfectly with their costs. They pay creators a portion and host the content- those are their costs. Netflix would have to risk their own capital on not just hosting the content but also make qualitative decisions around how successful a TV show or movie might be. Google doesn’t have that problem. Google also was very lucky to be in search. Warren Buffett used to opine about how good of a business being the only news paper in a town is. In a lot of ways, Google is the only newspaper in a town and the town is the internet. Like yeah, lots of other search products, actual news sites and social platforms exist but Google is where you go first and then you go to those sites.
Under attack from all sides
In what felt like a single year- Google was no longer leading the race in artificial intelligence, despite pioneering TPUs, Tensorflow, DeepMind, and other core stepping blocks. They were declared a monopoly in search where, by the way, it looks like Perplexity, OpenAI and Anthropic may eat their lunch.
They went from firmly ahead in their main thing and the new thing to being behind in both, almost overnight. I wouldn’t say that they are absolutely done growing, I would just say that there is actual competition at their door for once which they haven’t really seen in like 15 years or more. Players like Anthropic and OpenAI have pockets and talent just as deep as Googles so, they should be worried about their position. I think Google also has done everything they can to set themselves up to be replaced. Google does not benefit from Chrome or Android being open sourced. They don’t benefit for paying out as much as they do to creators. They could easily go to a smaller fixed-sized pool model like TikTok.
In addition to all of these problems. They share the same exact problems that Apple is facing with the Play Store and consumer sentiment. People used to remark about how much other search products sucked compared to Google and anecdotally- that has started to shift to LLMs that are not made by Google.
Honorable Mentions
Meta
Facebook being a social media platform makes them a little different. I would argue Facebook and Google have captured the traditional high margin advertising market where a brand curates an image or a video that gets put in front of consumers. The lower margin advertising market like physical ads and legacy cable systems are all held by the old guard of advertisers but are less and less relevant everyday.
Where Facebook may find growth is in emerging markets and VR applications. I do believe that someday we will all be wearing computers on our face. That day is not today but, if this long bet works out for Meta, I could see them being able to effectively tax the internet in the same way Apple has with iPhone for the last decade.
Amazon
Amazon will be a utility one day like CenterPoint or the Lower Colorado River Authority. The cost of compute trends to zero over the long term so AWS, Azure, and Google Cloud will likely capture the entire market at somepoint where regulators step in and dictate mandates and pricing. (I am rooting for you Linode!)
They have shown an ability to copy popular products like MongoDB and make their own cheaper version. So there is room for growth there. I am skeptical that their merchant storefront business can scale outside of America given the increased anti-globalism sentiment in my next paragraph.
Anti-Globalism
We are seeing that everyone who is not the US sees the winner-take-all nature of digital platforms. Over and over, there is news of these platforms meeting resistance on regulatory fronts they have no issue with in the States. (This is a huge topic so I am just going to keep it to the tech giants)
The reason the SP500’s biggest winners over the last decade are running into regulatory scrutiny abroad is that these other countries realize this arrangement is not good for them. American firms controlling Australian media is bad for Australia so they backed their domestic newspapers. The EU realized that the smartphone is basically the default computer for most people and that Apple and Google took 30% of all payments. That is effectively a private 30% tax on all smartphone users that doesn’t go to them. It leaves the country! So what did they do? They forced alternative app stores.
I was wrong
Had you asked me in 2019 how I felt about the monopolies getting larger, I would tell you there is basically no end in sight. In 2019, there really was no reason to think any of these companies wouldn’t just keep running. The FTC/DOJ were asleep at the switch (still are) and consumers mostly tolerated all of these monopolies. These monopolies are much smarter in how they avoid common pitfalls that would be straight up illegal in other contexts. What makes the 2010-2025 period such an interesting period is that prior to 2010, the top 10 companies in the SP500 at any given year where usually not the basket of companies you wanted to put your money into. Usually a company near the top of the index doesn’t perform as well over the next decade because they run into bureaucracy in middle management or they have captured the high margin revenue in their segment and are sinking capital into business prospects with a lower rate of return. That was not true with these monopolies. They learned that moving fast is important and organized business units in a way more startup-oriented way. They invested heavily in government lobbies to cement their position and skirt regulations.
I am just relieved to see the winds finally changing. I am not saying these companies won’t lead the index in the time to come. I am just saying that their position is in question for the first time in a long time.