The Rise of Today's Tech Giants:

An Analysis of Mergers and Acquisitions

Microsoft, Amazon, Apple, Google, and Facebook represent the world’s largest, most valuable companies. How did these tech companies rise to market power and domination in just over ten years? What can we learn from their growth and expansion strategies?


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Contents

  1. Market Conditions: Analysis of historical market trends within the tech industry that incubated growth conditions
  2. M&A Analysis: Analysis of strategic merger and acquisitions (M&A) deals that allowed vertical and horizontal industry penetration and gain of market share
  3. Impact: Analysis of public sentiment of the 5 tech giants and monopolization of the industry
  4. Recommendations: Data driven recommendations and conclusions based off of market conditions, strategic M&A trends, and public values



Market Conditions


We dive into the technology market trends that incubated the perfect conditions for tech companies to grow. We see how each company rose to market power below. We also include stock prices of each company to provide further market context.



Market Trends: Early growth of Semiconductors and Consumer Electronics
precedes explosion of software and data-driven trends
 

Stock Price of

AAPL



In Revenue of Tech Verticals, from the late 1990’s to the early 2000’s, the Semiconductor and Telecom sectors were valued significantly higher than all other sectors, with early industry developments that paved the way for future technological growth. There was subsequently rapid development of Consumer Electronics and the Internet of Things, like mobile devices, from 2006 to 2010. Mobile developments created a looming impact on enterprise and user-centered design.

At the same time, starting in 2008, digital experience, analytics, and cloud technologies started growing. Their disruptive potential evolved and expanded across industries, as they have become foundational concepts not only of enterprise technology, but of corporate strategy of all firms. Then, starting in 2016, with the growth of SaaS, Big Data, and Cybersecurity that are driven by cognitive technologies such as machine learning, robotic process automation, natural language processing, and neural nets, the race of tech companies to integrate such powerful data to innovate and gain market power is evident.

In the Market Cap Visualization, we see that early on, the technology industry was dominated by IBM and Intel, with market caps less than 100 billion each. Though these numbers seem large, they soon become dominated by the quick rise to market domination of Amazon, Apple, Google, Microsoft, and Facebook. The big 5 tech companies’ market caps skyrocketed past all expectations to values in the high hundreds of billions of dollars, and even surpassing the trillion dollar mark in the cases of Microsoft and Apple. Later on in this site we investigate how these tech giants grew their market caps to such high values through the lens of mergers and acquisitions.

The Stock Price Chart for the tech giants as well as for the S&P 500 and VGT (Vanguard Information Tech), an exchange focusing on technology companies, provides further context for the tech giants’ rise.

By comparing the growth of the 5 tech giants to the general market and the overall tech market, we can see how quickly they have grown. We can see company-level stock prices, such as the 20% drop in Facebook’s stock price and corresponding $120 bn loss in 2018 following a slew of scandals, and the meteoric rise in Amazon’s stock between 2015 and 2018 following Amazon’s launch of new products and expansion into previously unpenetrated markets.

Source: https://www2.deloitte.com/us/en/insights/focus/tech-trends/2019/executive-summary.html

Merger & Acquisition (M&A)
Analysis


What is M&A? An merger/acquisition is a financial interaction in which one company purchases most or all of another company's shares to gain control of that company. Purchasing more than 50% of that firm's stock and assets allows the acquirer to make decisions about the company’s assets without needing the approval of that company’s shareholders. They can occur with the target company’s approval, or can occur in spite of its disapproval of the interaction. Whether a deal is labeled a merger or acquisition depends on the how much of the target is being acquired.

Why do companies do M&A? Often, acquisitions are completed because they allow the larger company to skip the growth stage and buy existing sales and profits, possess rights to patents and technological advances, gain access to new markets, implement vertical integration by buying a supplier or end user of an existing product, take advantage of economies of scale, buy out a competitor, and/or to inherit strong leadership.

Our visualization To provide insight into how the tech giants managed to achieve the huge gains in market caps shown in the previous visualization, we explored the acquisitions that the 5 companies made between 1979 and 2019 as well as the overall trends in the volume of tech industry acquisitions.



All M&A Deals by the 5 tech giants (publicly announced):
Big tech companies penetrated and dominated within and across industries in order to grow

Instructions
Adjust the timeline to watch companies (represented by colored circles) be acquired by the tech giants. Press Play to see the years automatically progress. Press Scatter to see the companies separate into their parent companies. Hover over each circle to see company and deal details (if publicly available).

   

Source: PitchBook, Deals Data

As the dynamic visualization plays, we can draw conclusions about the acquisition practices of each of the big 5 companies. We see Microsoft and Apple are the two main pre-2000 acquirers, then as they are joined by Amazon in 1998, Google in 2001, and finally Facebook in 2007. Despite Google’s later start, it ended up nearly matching Microsoft in acquisition volume with a comparable distribution of SaaS, hardware, and media acquisitions. Similar comparisons can be drawn between other pairs and groups of the tech giants through this visualization.

It is especially interesting to see which sectors each tech giant focuses its acquisitions on and how they emphasize different sectors throughout the years. For instance, while Apple and Microsoft focused their acquisitions on SaaS (software as a service) in their early developmental years and only later began to acquire companies from niche sectors, Amazon started out by acquiring many media and commerce companies and only recently (2014 and beyond) began acquiring SaaS companies as they moved away from being purely an e-commerce site and into new domains.

Overall, this visualization emphasizes how many acquisitions Amazon, Apple, Google, Facebook, and Microsoft have made on their journey to the top of the tech industry. These acquisitions have been key to their success in penetrating new markets, developing new technologies, crushing their competition, and developing into the monopolies that they are today.

Volume of Tech Acquisitions Increasing Slowly Over Time
                                                 Source: Institute of Mergers, Acquisitions and Alliances (IMAA): Number & Value of M&A Worldwide

The volume of acquisitions in the tech industry aligns with the historical growth of the tech industry, and therefore can be viewed as an indicator of the health and activity of the sector.

At first, volume grew steadily from a mere 70 acquisitions in 1986 to a maximum of nearly 7500 deals at the peak of the dot-com bubble in 2001. Coincidentally, dot-com businesses grew rapidly in the late 1990s through 2001 and internet-based businesses thrived, mostly funded by venture capitalists and banks looking to get in on the internet trend. It was not until 2002 that the tech bubble truly burst, resulting in a significant decrease in net acquisitions in the industry. Some proposed reasons for the bursting of the dot-com bubble in the early 2000s include the simultaneous general economic recession, expositions of corporate corruption at several large tech companies, and an overvaluation of stocks combined with faulty business plans of many technology startups.

Less than half of the affected dot-com companies survived until 2004, and many of those that did survive became more cautious about expanding, which aligns with the 2004-2008 period of slow increase in acquisition volume. Other companies, however, bounced back from the crash, including today’s tech giants, Amazon and Google.

The Great Recession of 2008, a period of general economic decline, caused a similar drop in the volume of tech acquisitions lasting from 2009 until 2013. The past 5 years have seen a steady medium rate of acquisitions, with no sign of slowing down. Although the 2019 bar looks smaller than the others, the data does not include fourth-quarter deals and is projected to be similar to last year’s volume.



Impact of Tech Giants on Society


These 5 tech giants have a profound impact on society, from our daily lives to the structure of the national and global economies. Amazon, Google, Facebook, Apple, and Microsoft are household names and used daily by millions of Americans, yet are rampant with potential issues that pose threats to the country on an individual and societal level. The companies have received extensive criticism for data breaches, harvesting user data, and developing into imposing monopolies able to stifle competition before it even becomes a threat. These issues do not go unnoticed: Facebook was recently sued for misusing internal information and breaching privacy agreements, Google is facing billions of dollars in potential fines over its antitrust practices, and Senator Elizabeth Warren recently proposed a plan to force big tech breakups and impose severe restrictions on the remnants while seeking the Democratic presidential nomination. In this section, we investigate the general public opinion of the 5 tech giants and their monopolization of the industry.


Public Opinion: with an overall positive sentiment, there is still distress about big tech's monopolization

The following three visualizations detail the results of polls to the general public on their opinion of the 5 companies, whether or not they are concerned about the monopolization of the tech industry, and their view on a potential policy to reverse recent mergers to break up the tech giants.

Overall Positive Public Sentiment
How do you feel about this company?
Source: Statista, Tech Giants in the U.S. 2019 report
Concerned about Monopolization
How do you feel about the digital sector
being dominated by just a few tech companies?

Source: Statista, Tech Giants in the U.S. 2019 report


Overwhelming Support to Break Up Big Tech
Would you support or oppose a policy breaking up big tech companies by undoing recent mergers
(such as Facebook buying Instagram) in order to increase competition in the future?
Source: YouGov / Data for Progress


Public Prioritizes Social Causes
Percentage of Survey Respondants That Believe Tech Companies
Should Prioritize These Societal Issues
Source: Statista, Tech Giants in the U.S. 2019 report

The Public Sentiment visualization reveals an overall positive view of all 5 tech giants, ranging from a cumulative 81% “Strongly positive” or “Somewhat positive” for Amazon to 55% for Facebook. While this aligns with the widespread use (and perhaps dependence) on these companies, this is surprising considering the recent negative publicity of privacy scares and antitrust issues.

However, the Monopolization and Break Up Tech visualizations seem to conflict with the Overall Public Sentiment: while the Overall Public Sentiment chart shows significant positive view of the companies, the Monopolilzation chart reveals a majority negative feeling toward the tech sector being dominated by only a few tech companies (45% to 37%) and the Break Up Big Tech chart shows that a significant majority supports undoing recent mergers, regardless of political leaning. This seems to reveal a complex public view of the companies: while the big tech companies provide innumerable services to the general public and sometimes use their resources to do good, there is still general distress about their monopolization of the industry.

The Public Priorities visualization demonstrates that the public believes that the most powerful companies should use their power to address social issues. Education is most valued, followed by Fighting Poverty and Environmentalism.

This is an opportunity for the most wealthy companies to look into potential acquisition targets focused in those specific areas in order to align their values with those of the public.

Recommendations

  1. Beating the market: Given the exponential growth of Big data, Digital ads, SaaS, and Cybersecurity, driven by cognitive technologies, tech giants should focus on leveraging those technologies and focus on M&A in those areas.
  2. Strategic M&A: Tech giants should focus on both vertical and horizontal M&A, especially in acquiring more AI and Analytics companies as there have been fewer acquisitions in those areas that have most future potential. Additionally, focus on acquiring Education and Social Justice oriented companies to align corporate missions with the public values.
  3. Impact of Technology and Society: Given the distress of tech giants's monopolization and support for the break up of big tech, tech giants should increase transparency and educate the public on their values. Tech companies should invest in more social causes and use their assets and network to work on problems that matter most to a society.

Meet the Team


Nicolas Lepore

Harvard College '21

Rebecca Lisk

Harvard College '21

Lin Zhu

Harvard College '21