[The Editors' Verdict] The Exaggeration of the "ICT Winner-Takes-All Era"

Kim Kyung-soo, Professor Emeritus at Sungkyunkwan University

At the beginning of the year, technology stocks are undergoing a correction. Since most technology stocks do not pay dividends, they are particularly sensitive to the direction of central bank monetary policy, but not all technology stocks behave this way. Some companies, like Facebook, have seen their stock prices drop significantly, while others, like Amazon, are showing signs of recovery.

The business models of technology companies rely on user-based networks. Social networking service (SNS) companies, which are centered on information and communication technology (ICT), attract more users as their user base grows, and the value of that network increases exponentially. Manufacturing companies that produce digital devices to connect to these networks experience similar effects.

The digital era driven by ICT has transformed corporate performance to depend more on data than on market discipline. The more data a company holds, the more diverse and superior products and services it can produce, and by establishing a virtuous cycle that collects higher-quality data, it can pursue economies of scale and scope.

According to Wikipedia, at the end of last year, nine out of the world's top ten publicly traded companies (eight from the U.S., one from China, and one from Taiwan) were technology companies. This highlights how quickly networks and big data have created enormous market value. Many believed that an era of winner-takes-all had begun.

However, recent trends in technology companies prompt a reconsideration of this issue. According to The Economist, the five major U.S. technology companies (Alphabet, Amazon, Apple, Facebook, and Microsoft (MS)) invested $280 billion last year, accounting for 9% of total U.S. investment. This reflects intense competition among these companies, making it impossible for them to remain complacent in their own domains. Apple is developing virtual reality headsets to compete with MS (HoloLens) and Facebook (Oculus), while Alphabet, Apple, and Amazon are making massive investments in autonomous vehicles. Cloud services, where Alphabet, Amazon, and MS compete, are another example.

Competition is not limited to giant technology companies. Just as Facebook, with nearly half of the world's population as users, struggles against TikTok, challenges from much smaller technology companies and offline companies rearmed with ICT are also intensifying.

Second Life is an online multimedia platform developed in 2003 by the internet gaming company Linden Lab. Second Life opened the door to the metaverse (an extended virtual world). The metaverse replicates real-world life in a virtual space. Although it is currently mostly featured in movies or dramas, it is seen as the future of communication and interaction.

However, it is not easy for ordinary people making a living to live a second life in virtual space. Above all, becoming familiar with the user environment requires a significant investment of time and energy. Even if younger generations adapt early to the metaverse, they naturally tend to focus more on the real world as they reach adulthood. Therefore, unless economic value is created, the user base will inevitably be limited.

The ups and downs of such technology companies imply that the winner-takes-all era has been exaggerated and that market discipline remains valid. Innovation and competition are possible because of enormous investment funds. The Economist reported that global startups raised $621 billion in venture capital last year. Such massive investment was made possible by low real interest rates created by excess savings.

Recently, historian Niall Ferguson proposed a hypothesis that real interest rates have been declining for 500 years. Perhaps the winner-takes-all era is a vision of the very distant future.

Kyungsoo Kim, Professor Emeritus, Sungkyunkwan University