The US is home to a huge industry that has been around in some form or another since the late 60s, but which really began to explode in the 90s. Innovation was rapid: massive leaps forward could be expected every few years, and supporting infrastructure was quickly built out everywhere. At its peak, there were countless startups jumping in every year to compete in the rapidly growing market. And the United States was at the center of it all, leading the world with the most recognizable success stories in the industry. Consolidation means that only a small handful of massive companies dominate the industry today.
I am talking, of course, about automobiles.
It’s been more than 100 years since mass production at scale, so we can safely say automobiles are a mature industry. Most of the incumbents are quite old, and new startups that disrupt them are rare – Tesla being a notable exception. You typically do not see rapid advances that make older models obsolete within a few short years. Things today look roughly how they looked a decade ago. Etc.
In contrast, dial-up became broadband became WiFi became 4G LTE in short order. LiveJournal gave way to Friendster gave way to MySpace which gave way to Facebook. The conventional wisdom is that disruption is always just around the corner. That the right college dropout could change the game again at any moment. But perhaps our faith in the perpetual motion machine of the technology industry is…unfounded? What if we were just in the crazy early wild west days, and are starting to settle into a long haul “maturity” phase? What if it’s already happened?
There is some evidence that this has at least started. Here is Crunchbase data on startup formation over the last 10 years:
There is clearly a worrying trend towards fewer startups being founded after peaking in 2014.
US IPOs are noisier, but data going back to 2005 suggests a slightly declining trend as well:
More worrying is how much the “fat head” has accumulated. The top 5 largest technology companies today (Apple, Amazon, Microsoft, Google, and Facebook) have a collective market cap of $6.8 trillion (reminder: that’s $6,800 billion, or as many as 6,800,000 millionaires). They’re worth more than the combined market cap of every health care company in the S&P 500.
There are other signs of maturity in the technology industry. Regulation and enforcement that was unthinkable just a few years ago are now the norm (see: Europe). Countries all over the world are exerting more control over technology and information companies than ever before (see: Google in Europe, Facebook in China, TikTok in the US, Apple in…everywhere).
What does this mean for policymakers? For entrepreneurs?
For policymakers, there’s some low hanging fruit around the elimination of startup killers like employment non-competes, and maybe immigration reform that stops discouraging talent from contributing to the industry here. But the secular decline in new company formation follows a yearslong trend that isn’t just limited to technology startups, suggesting the problem is at least partially “dynamism in the broader economy,” and not just some attribute of the technology industry specifically .
For entrepreneurs, it can be deceptively expensive to start a new business, depending on your industry. Yes, Amazon Web Services is cheap. But the real costs are regulatory (and the people to deal with the regulations, and the health plans for those people, and the people to deal with the health plans, ad nauseum), especially if you want to reach the broadest audience possible. Learn to love acronyms like CASL, CCPA, and GDPR. And know that regulation will generally have the unintended effect of entrenching the existing big players, so today’s incumbents are more likely to stay dominant than in the past. That in turn suggests that a successful new entrant’s best hope is to be acquired, rather than to “disrupt” the likes of, say, FAANG.
In other words, we are very, very, far from “On the internet, nobody knows you’re a dog.” It isn’t necessarily a bad thing if software and the information industry is growing up. But it’s almost certainly a mistake to assume the churn from the early years will continue at the same pace.
 Tesla is the leader in the still niche battery-electric vehicle category, but still has only ~1% US automotive market share, which is a tremendouss achievement! But also goes to show how low the bar for disruption is.
 We could fix healthcare, which would help tremendously with new business formation across the board, but that’s not low hanging fruit.