Are technology giants becoming too big to fail?

The 2008 financial crisis gave birth to the notion of too big to fail financial institutions. As IT is quickly becoming a 24/7 services utility with key industry segments dominated by few, very large companies, the notion of too big to fail may be applicable here too. The success of these large platform providers implies that our personal and professional lives rely increasingly on their functioning, availability and well being.

What would be the effect on the world economy in a few years time if one of them were to run into serious trouble? Possibly more impactful than the sudden collapse of Lehman Brothers in 2008. Assessing and mitigating the risks related to serious failures of ‘public IT utilities’ is probably not a priority for authorities and institutions today. We may have to witness a big ‘accident’ first before adequate measures are being taken.


The 2008 financial crisis gave birth to the notion of too big to fail financial institutions. We were confronted with (or were reminded of) the fact that parts of these institutions are in fact utility providers. They supply us with essential services and for this reason the financial system’s proper functioning is critical beyond the primary role of the financial industry. In response to the crisis, governments strengthened their role in regulating the industry to limit risks.

If we consider the IT industry, leading companies have benefited from economies of scale and networking effects in the last three decades as well. This has led to few companies dominating certain industry segments. Regulators across the world have sometimes fought against the abuse of dominant market positions but have not been successful in reversing them.  By the time the US government and the European Union completed their antitrust reviews of Microsoft, Microsoft had already dominated the PC market. The subsequent relative decline of Microsoft came about through market forces and not government intervention.

Despite such concentrations of power, IT systems have been too decentralised in the way they run to give cause for concern regarding the stability of economic systems. For example, if Microsoft went bankrupt in 2000, all computers running its software would continue operating the next day. There would have been no automatic continuation in the Microsoft product lines but the economic system would not have ground to a halt. Other companies would have bought parts of Microsoft to make a business out of supporting the existing software products and over time customers would have migrated to other products and vendors.

The dependencies are changing structurally now. The IT industry is turning into a 24/7 utility services industry quickly that is also characterised by scale and networking effects we have never seen before. 

For example, the cloud we refer to as public cloud -implicitly underlining its utilitarian function- is already dominated by a small number of providers. They are providing higher quality services at lower unit cost given their enormous, global customer base. Each of them has a capital expenditures level approaching the building of one aircraft carrier annually (raising the barriers to enter these markets). They also benefit from significant networking effects in multiple dimensions. As more developers and companies work with their platforms, they attract more customers and end users in a mutually self-reinforcing manner. New technologies (AI, big data, API’s, OSS) provide additional networking effects.

The success of these platform providers implies that our personal and professional lives rely increasingly on their functioning, availability and well being. What would be the effect on the world economy in a few years time if one of them were to run into serious trouble? Possibly more impactful than the sudden collapse of Lehman Brothers in 2008.

 In the 1990s Bell Labs worked on visualising the internet. This  picture  is an iconic representation of early international data flows. Economic (inter)dependencies have grown exponentially since then.

In the 1990s Bell Labs worked on visualising the internet. This picture is an iconic representation of early international data flows. Economic (inter)dependencies have grown exponentially since then.

The increased speed of today’s technology adoption curves, combined with the knock on effects of aforementioned economics is complicating matters for authorities. The methods of the regulatory authorities are not in sync with the emergence of new “winner takes all” opportunities and would be too slow nowadays in evaluating a company once they have identified such a situation is unfolding. Furthermore, a new dimension has entered the equation; one which authorities should take into account: the dependence of entire economic systems on the continuous, online availability of IT infrastructures and services.

The markets for online IT utilities will continue to grow in the foreseeable future and it is hard to imagine that these giga scale companies -or their services- will fail in the near future. It is equally likely that authorities remain focused on managing other priorities for quite some time: geopolitical and financial instability, economic slowdown, terrorism and refugee crises, climate change… An assessment of the risks related to serious failures of ‘public IT utilities’ is therefore likely to be flying under the radar of authorities and institutions. We may have to witness a big ‘accident’ first before adequate measures are being taken.