Insights News

Google is bigger than Denmark… well, by 2028. And here’s why it matters.

Written by Gareth Morrell, Head of Insights & Dominic Weeks, Head of Technology

As the dust settles on the Cambridge Analytica revelations and the congressional appearance of #zuckerberg, the implications of the rapid rise of GAFA (Google, Apple, Facebook, Amazon) on our daily lives are starting to become clear to us all. One immediate impact of the events of the last few weeks has been we’ve probably all had the shock of realising exactly what these companies know about us.

Sentiment seems to have wavered between outrage and apathetic resignation – “my data isn’t that valuable anyway” – and even some social scientists questioning the likely impact of Cambridge Analytica’s efforts.

However, when examining the financial clout of these companies and the growth trajectory they are currently projected to be on, it sets a new context for considering the information they hold, the social, cultural and political influence they wield. The intriguing question is whether us users care enough about this potential threat to democracy to give up our access to a lifetime of cat videos (amongst other services that these companies provide).

Taking the long view, is it even a problem that these companies are growing so quickly? There have always been huge companies: as far back as the 17th century, researchers estimate that the Dutch East India Company was worth the equivalent of today’s top 20 companies combined. Looking purely at revenue, there are also companies that are far bigger today than Alphabet (Google’s holding company) and Facebook – Walmart’s revenue is four times Alphabet’s and 10 times Facebook’s.

There are two factors, however, that drive the extra focus on these companies and legitimise the recent concern over their real and potential impact on democracy and civil society.

Explosive growth

The first is the explosive rate of growth. Alphabet already has an annual revenue ($110bn) greater than the GDP of Morocco. In the past ten years, this revenue has grown on average by over 20% per annum; Facebook, with a revenue of $41bn in 2018, has grown more than 40% per annum in the same period. On top of this, current market valuations of Alphabet and Facebook are 7-8 times their revenue, suggesting that, despite negative recent impacts on their valuations, investors expect similar growth in the future.

Projecting forward then, even assuming 15% growth over the next ten years, Alphabet will have an annual revenue of $515bn by 2028, making it equivalent to the 29th biggest economy in the world, larger than the GDP of Denmark (assuming a 3.5% growth rates in GDP). By that time, Alphabet’s revenue will also be almost the same as Walmart’s, just 10 years on from being one fifth of the size. And while it took Walmart 70 years to become a company with a revenue over $500bn, it will have taken Alphabet just 30. Expediting that growth is the ability to reinvest profits given high margins. This is reflected in their revenue per employee: Alphabet makes a fairly staggering $1.25m a year for every person it employs; Walmart makes $200k.

Selling persuadable minds

The second factor that legitimately turns the spotlight on these companies is that the nature of their business models is fundamentally different from the mammoth companies of the recent and distant past. They aren’t selling finite physical commodities where more raw materials are needed to produce more revenue or expensive high-end services where the market is smaller. Alphabet and Facebook are, after all, primarily media companies, and the product they sell advertisers is the opportunity to persuade us of something – but it costs them almost nothing extra to deliver ads to 100 people or 100 million people, though they will obviously charge more. As such there are fewer natural commercial limits to the growth of these companies.

The fact that they trade in the information we provide them means they have an inevitable influence on social and political debate and therefore attitudes, whether deliberate or not. This make these information giants a very different proposition to transactional companies of the past. Jamie Bartlett has discussed at length (most often in a series of connected 280 character segments but elsewhere in more traditional forms) the fundamental challenge this represents for democracy. In particular, the specific tailoring of content just for us is perpetuating a fickle and fractured politics, incentivising and rewarding short-termist politicians, contributing to potentially harmful periods of political inertia. At a time when some of the greatest challenges we face, such as an ageing population and a warming planet require long-term solutions, this is particularly concerning.

So what to do?

The recent congress hearings suggest that politicians don’t currently have the wherewithal to even identify the real challenge to democracy, never mind work to mitigate it. That leaves the companies themselves and us the users to pick up the mantle. There’s an opportunity here for these companies to provide some vision and leadership for their new but growing industry. If one of them can devise a new business model that provides more user, grass roots control in a way that maintains to even improves revenue, then the company may well be ahead of the game – just look at what embedding sustainability has done for Unilever.

Recent moves by Facebook to move the data of 1.5bn users out of the EU and therefore out of the jurisdiction of the imminent GDPR suggests it might not be them. Can we, the user, force their hand in this and encourage a shift in the way these companies view themselves and their role in society? There will no doubt be consumer pressure on companies like Google and Facebook to change as we all become more aware of the data they hold on us. But will we really withhold our data if it means we can’t access the things we all now rely on? Sure there might be a spike in people following the message of #deletefacebook but this may not continue. Put down the device you’re reading this on just for 30 minutes and see how you fare – it could be harder than you think.

View our infographics on the growing global influence of digital media companies