Monopoly Profits, AI Arms Races, & the Mirage of Silicon Valley Platform-Oligopoly Disruption

Users are likely to gain massively from the buildout of MAMLMs—natural-language interfaces, very big-data very high-dimension very flexible-functional-form classification and regression analysis...

Users are likely to gain massively from the buildout of MAMLMs—natural-language interfaces, very big-data very high-dimension very flexible-functional-form classification and regression analysis, and the rest. Or, rather, they will do so if ChatBots and their ilk become users’ servants rather than users’ masters.) But the idea that new Googles and Facebooks will arise from the disruption of incumbent platform-oligopoly tech megacorps seems, in my view at least, highly likely to be pure mirage…

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The pace of technological change in the 21st century has been astonishing, but its locus is shifting rapidly from the consumer-facing edges of the tech sector to its very core: the infrastructure, the platforms, and the software development processes themselves. The old guard—Google, Microsoft, Apple, Amazon—built their empires on the back of 20th-century innovations: search, productivity software, e-commerce, and the personal computer. These platforms, for all their dynamism, are now showing their age. Their architectures, interfaces, and business models are deeply rooted in the needs and constraints of an earlier era—one in which humans, not machines, wrote the code and specified the queries.

And so this morning we find the very sharp Charles Ferguson writing:

Charles Ferguson: How AI Will Disrupt Big Tech <https://www.project-syndicate.org/onpoint/big-tech-firms-cannot-outrun-ai-by-charles-ferguson-2025-06>: ‘AI is advancing at an astonishing pace and undermining the core businesses of tech giants like Google, Microsoft, and Apple…. It is also reshaping… software development… [perhaps] render[ing] much of today’s tech sector obsolete…. The most obvious victim… Google[‘s]… revenues derive primarily from ads…. [But] OpenAI’s ChatGPT, Anthropic’s Claude, or Perplexity [are]… already vastly superior to the Google hunt-and-peck model…. [As for] the current industry’s [other] giants… AI may well supersede them [as well], and it is already opening space for new disruptors…. Microsoft and others are adding AI “copilots”…. But all of those products are burdened by history…. Wouldn’t you be better off using something designed from the ground up with AI in mind?… Amazon’s interface is cumbersome…. AI technology is improving stunningly fast…

Indeed, the rise of generative AI, this comfortable order is under existential threat. The new tools applications are new ways of interacting with information, of specifying tasks, of building software. The tyrannies of “hunt-and-peck” searching, spreadsheet cells, rigid and picky programming languages, and much more are all are being eroded by systems that can be instructed in natural language, that can generate not just code but prose and even analysis on demand, and that can automate workflows once thought to require armies of engineers. The implications are not just for consumers, but for the very structure of the technology sector itself.

But is Ferguson right in seeing tech-titan disruption by challengers as the likely outcome?

I think not.

For the tech giants have something to say.

It is this:

Nobody is going to disrupt us by creating a better natural-language interface to services like ours. Why not? Because we are going to spend as much money as we need to to absolutely swamp anybody else’s efforts with our own. Thus:

Ethan Wolff-Mann: Chart of the Week: 2025's monster AI spend is now revealed <https://finance.yahoo.com/news/chart-of-the-week-2025s-monster-ai-spend-is-now-revealed-110012820.html>

If anybody is going to disrupt us, they are all saying, we are going to do it ourselves. Mark Zuckerberg of Facebook put it most succinctly: “[our] advantage [is] that we’re now going to be able to provide a higher quality of service than others who don’t necessarily have the business model to support it on a sustainable basis”.

Cross-subsidizing their AI-spend from their existing monopoly profits will create an environment in which challengers are unlikely to thrive. This is not a novel maneuver. Microsoft, in the late 1990s, famously salted the earth for its competitors by distributing Internet Explorer for free, thereby suffocating Netscape and any other would-be browser innovators. The playbook is simple: leverage the cash flows from entrenched monopoly positions to underwrite loss-leading forays into new markets, making it impossible for less-capitalized entrants to gain a foothold. The result is a chilling effect on innovation, as potential disruptors find themselves starved of both capital and oxygen in a landscape increasingly dominated by a handful of giants who can afford to play the long game.

Now, this ought to have been bad news for the tech giants’ stock prices, as they are spending fortunes to create services that they do not expect to charge for but rather to give away for free to cut off all oxygen to every potential disruptor. In a rational world, investors would look askance at such expenditures—capital being poured into projects with no clear path to monetization, all in the service of preemptive defense rather than productive expansion. Yet, the markets appear to be in thrall to the narrative of AI-fueled growth, rewarding these expenditures with buoyant valuations. The logic, if one can call it that, is that the sheer scale of spending itself constitutes a barrier to entry, ensuring that only the already-mighty will reap the rewards of the coming AI harvest.

Yet the stock market—puzzlingly—does not see it that way, but rather sees big profits coming to AI, to both platform oligopoly incumbents and to challengers. Investors, it seems, are betting that the AI tide will lift all boats, or at least those moored to the right platforms. Perhaps this is a case of collective irrational exuberance, or perhaps it is a calculated wager that the new technologies will create, as in previous waves of innovation, rents sufficient to justify current valuations. Either way, the disconnect between the logic of competitive dynamics and the feverish optimism of the markets is striking.

There is a very good case that history is, once again, about to rhyme. The collapse of the original tech bubble in 2000 was not a technological or a productive event. The underlying progress in information and communications technology continued at a breakneck pace; the real economy, far from suffering, benefited from the ongoing build-out of digital infrastructure and networks. What burst was not innovation itself, but the speculative froth that had accumulated atop it. Financial markets, having constructed castles in the air, discovered that they were not, in fact, built on bedrock.

The advance of information and communications technologies continued at its rapid pace. The fiber-optic cables laid during the dot-com boom, the data centers constructed in anticipation of endless growth, all eventually found productive use. The lesson, if there is one, is that technological revolutions tend to outlast the bubbles that so often accompany them. The real gains accrue not to the speculators, but to the broader economy—though not always in ways that are immediately apparent.

Even the build-out of valuable production networks providing enormous benefits for all stakeholders from raw material providers to customers continued unabated. The collapse of market valuations did not halt the diffusion of new technologies or the emergence of new business models. If anything, it cleared the field for a new generation of innovators—Google itself being a prime beneficiary of the post-bubble landscape. The creative destruction of financial manias, for all their pain, has a way of clearing out the deadwood and making room for new growth.

It was a pure financial and corporate event—but there it was a catastrophe. Four trillion dollars of wealth that venture capitalists and investors back then believed that they owned vanished, as its fantastic cloud-castle nature was revealed. The lesson, I guess, is that the market’s immediate knee-jerk verdict is not always the last word on technological or economic reality. $4 trillion of wealth that venture capitalists and investors back then believed that they owned vanished, as its fantastic cloud-castle nature was revealed.

The ghost of 2000 haunts the present moment. Are we, once again, mistaking via speculative exuberance the magnitude and immediate profitability of what really is genuine transformation?

Generative AI is, however, very likely to render much of the contemporary tech sector obsolete. Most of Google, Microsoft, Facebook, Apple, Amazon, and so forth are likely to stay the same, but only through changing themselves utterly. The true locus of innovation will lie deep inside the infrastructure of the tech platforms and associated development tools. And anyone who expects to continue to profit—or even to have a job—from participating in the ecology around any one of Silicon Valley’s titans is almost sure to be disappointed.

Indeed, the tech titans may be the only thing standing at the end in still recognizable form. Nilay Patel of The Verge claims to have copyrighted the term “Google Zero” and threatens to aggressively charge anyone who uses it in order to keep the CFO of Vox Media sweet on writing checks to his staff. Listen to him. Everyone who relies on a money flow coming to them from Google, or Facebook, or Amazon, or Apple, or Microsoft needs to already be thinking very hard about how they are going to deal with a systemic disruption that the tech titans seem to me to be likely to survive.

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References:

• Ferguson, Charles. 2025. “How AI Will Disrupt Big Tech”. Project Syndicate, June 13. <https://www.project-syndicate.org/onpoint/big-tech-firms-cannot-outrun-ai-by-charles-ferguson-2025-06>.

• Foroohar, Rana. 2025. “Early Adoption of AI Will Boost US Growth.” Financial Times, June 1. <https://www.ft.com/content/339a7e8c-d7ba-499c-b02d-40a514d6bd8a>.

• Patel, Nilay. 2024. “Google Zero is here—now what"?” The Verge, May 30. <https://www.theverge.com/24167865/google-zero-search-crash-housefresh-ai-overviews-traffic-data-audience>.

• Rattner, Nate, & Jason Dean. 2025. “Tech Giants Double Down on Their Massive AI Spending.” Wall Street Journal, February 6. <https://www.wsj.com/tech/ai/tech-giants-double-down-on-their-massive-ai-spending-b3040b3>.

• Wolff-Mann, Ethan. 2025. “Chart of the Week: 2025's monster AI spend is now revealed”. Yahoo! Finance, February 8. <https://finance.yahoo.com/news/chart-of-the-week-2025s-monster-ai-spend-is-now-revealed-110012820.html>

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