Is technological progress amplifying the power of big firms?
A counterintuitive thesis
The Vienna University of Business and Economics recently invited me to an interview about my new book, which plots the future of finance. As I already make clear in the very title of it, I see Big Tech as the most crucial game-changer in the money business. This goes against most other book titles, newspaper headlines, and Ted talks. Pundits seem to be convinced that we are about to enter an age where startups will quickly dethrone the incumbents of banking. Some even see the future of money run by leaderless, autonomous organizations in which human intervention is dispensed with altogether.
So naturally the interviewer incredulously asked me in his very first question whether bigger really is better. And if so, how could this be in today’s business world that is defined by breakneck speed of innovation? Isn’t it rather that a constantly evolving arena favors small and agile startups and fintechs? After all, every management theorist will tell you that the rise of disruptive technology – which blockchain and AI undoubtedly are – destroys much of the competitive advantage of dominating firms. In theory this should deal the cards anew and play into the hands of new challengers. In theory.
Reality looks different. In fact, what we see in financial services when we glimpse beyond the handful of headline-capturing unicorns and into the raw market figures is exactly the opposite. Innovation is strengthening the grip of Big Banking, Big Tech, and even Big Government. Examples abound. For the latter look no further than to the potential offered by CBDCs, as well as the fact that nine out of ten central banks are jumping on the bandwagon. Banks like JP Morgan Chase and payment giants like PayPal are kicking their stablecoin efforts into high gear. And Big Tech has been drawing on the full potential of distributed ledger technology to break into various branches of financial services for years. It is not surprising that there is a willingness of dominant players to capitalize on the promises of new tech. But why is it that they are so successful with it?
The reasons new tech favors large players are manifold. For one, new technology brings about an elimination of market entry barriers but also an acceleration in terms of customer acquisition. Companies and new applications must acquire customers and users at a continuously faster pace. Big market players are at a significant advantage here – because of their already existing customer bases and because of their deep pockets.
Another reason is that the digital age is driving forward double-sided platforms, which in turn most often work by a winner-take-all logic. This means that market success and scale are inextricably linked. The higher the incentive, the more resources big players are ready to pour into their forays.
If you want to hear more details on those thoughts and about other benefactors for large players, watch the entire interview below. In the interview I also talk about specific companies that can serve as role models in the application of groundbreaking tech, about what the convergence of phenomena such as DeFi or Web3 will look like, and what this will mean for existing technologies. Eventually, I also discuss whether amidst today’s gold rush mood technologists are simply in search of problems their new tools can solve or whether there are real customer needs driving the evolution of finance. And if so, how pressing are those needs? Find out and as always, let me know if you agree or disagree in the comments below this article.