Are Our Big High-Tech Companies Too Big To Fail?


Is high-tech headed toward the same end zone as the auto, financial services and banking industries? There are plenty of folks arguing that the economic mess we are in is a direct result of banks, auto makers and financial services firms getting far too big and, as a result, having too large an impact when they stumble.

There's plenty of legitimacy to that argument. Capitalism works best when there is lots of competition and a vibrant stable of start-up competition. That's something high-tech has always had.

But the competitive scene has been diminishing for some time now. Venture capital-backed start-ups used to charge toward an IPO as an exit strategy with plans to cash in big. That's no longer the case.

EqualLogic was a great example of a company that was venture-capital-backed and rushing toward an IPO when Dell came along and offered $1.2 billion for the company.

Increasingly, the Big Boys are buying up the start-ups. Hewlett-Packard and IBM are—or near—$100 billion companies. Cisco is a $40 billion company. Microsoft tips the scales at around $60 billion.

What would happen if a company of this magnitude were to stumble badly—especially when you realize that not only are our financial institutions running on their infrastructures, but the U.S. government itself is running its technical infrastructure on products and services supplied by these very same firms?

Let's not forget that IBM nearly faced extinction in the 1990s. But that was a different time when the high-tech field was much more crowded with competition. We also now are headed toward cloud computing and a whole new set of complexities.

High-tech now has a stable of megasize companies that are so tied into the infrastructure of our economy that when one of them stumbles, as it inevitably will at some point, we just may be talking about government bailout or intervention, a rescue much like we have seen with AIG and the big banks over the past six months.

There is no easy answer to these complications. In the end, the best protection against this is a diversified, vibrant and large competitive market. Ideally, we want to have a market where the sales and power are not concentrated in just a few companies. Unfortunately, we are headed toward just the opposite.

Information technology is an increasingly important utility, and the concentration of that utility is accelerating.

BackTalk: Make something happen. Robert Faletra is CEO of Everything Channel. You can contact him via e-mail at rfaletra@everythingchannel.com.