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Extraordinary Times Indeed

By Rob Shears on June 7, 2021 in Other

Knowledge is power.

Something is happening that has never happened before. The world’s largest companies are accelerating. Microsoft is growing revenues at nearly three times the rate of the last decade. Alphabet is growing faster. Amazon is growing faster.
This is extraordinary. In the past, when companies became large, their growth naturally slowed down. The law of large numbers took hold. It was difficult for ExxonMobil to find larger oil fields. General Motors had difficulty increasing the number of cars it sold. General Electric proved that growing in size is difficult and has also had issues.

Why are these huge companies accelerating?
Selling electrons around the world is far more profitable and easily scalable than selling cars, planes, trains, oil, insurance and loans. The next user of Instagram costs Facebook essentially nothing. The next person watching YouTube costs Alphabet essentially nothing.

“Software is eating the world” – Mark Andreessen
These companies have built global network effect platforms. As they scale, their network effect becomes stronger and they become far more profitable than the large businesses of yesteryear. The internet is now ubiquitous and the largest companies profiting from this are behemoths.
Data storage and usage via the cloud is the recent growth accelerator for Alphabet, Microsoft and Amazon. Andy Jassy, the new CEO of Amazon, recently stated that cloud currently only accounts for less than 5 per cent of global IT spending. This is likely not the end of the growth cycle; we are probably closer to the beginning.
With machine learning still in its infancy, we expect that there will be increased use of the ‘railways of the internet’; namely Microsoft, Amazon and Alphabet. These flywheel compounders are continuing to innovate and spin their flywheels faster as adoption of their cloud services becomes a larger part of their businesses.
Some have noted that not all of the large internet businesses are positive for society, and there is certainly truth to this notion. Despite this, we also see the enormous positives that some of these companies now offer our global community.

Information is now essentially free
100 years ago, anyone outside the upper ends of society could not afford a formal education. Without a formal education, it was difficult to climb out of a relatively fixed societal class structure. Warren Buffett talks about how he won the ovarian lottery being born a white male in a good area of America.
Today, anyone who can afford a $100 tablet and find an internet connection has more free information at their fingertips than John D. Rockefeller did in his extensive libraries. You can now learn almost anything for free. The classic books are free. You can learn almost anything on YouTube.
Information has been democratised. This will be wonderful for society over the coming decades.
We are hugely confident that some of the future leaders of the world will be those who have been able to educate themselves with free access to information on low cost devices.
With the removal of the information advantage, someone in a poorer country has opportunities in the global economy that previously never existed. Their struggle is certainly not easy, however it is easier than it previously was and will be even easier in 10 and 20 years to earn an income from global sources. Artists in Africa are selling their art on Redbubble to customers in New York and London. To understand this opportunity is extraordinary.
The world continues to improve over the long-term. Some companies are accelerating this improvement and reaping extreme profits in the meantime.

Rob Shears is an Authorised Representative of Valor Financial Group (AFSL 405452). This advice is general and does not take into account your objectives, financial situation or needs. You should consider whether the advice is suitable for you and your personal circumstances.