Didn’t win $1.537 Billion in Powerball? Try Tech Instead!

On Tuesday October 23rd, 2018, a single person in the great state of South Carolina won the $1.537B dollar jackpot in Powerball. This was the largest prize in the history of the lottery. A single ticket costs $2 and the odds of winning were roughly 1 in 300,000,000. This led to an unprecedented number of players tossing their hat in the ring for their chance at over a billion dollars.

While congratulations are in order for whomever this lucky lottery winner is, for the rest of us; we may want to consider a career in technology. In fact, the earnings or ‘winnings’ in the technology industry are much greater than those of the lottery.

On the 2018 Forbes list of World Billionaires, there are over 2,000 billionaires that live in the United States. Within the top 10 globally, 4 (Jeff Bezos, Bill Gates, Mark Zuckerberg & Larry Ellison) made their billions in the technology industry. Collectively, this group controls an astronomical $331 billion dollars. Jeff Bezos, founder of Amazon, the #1 person on the list has over $100 billion dollars.

If we look across the entire list of billionaires, more than 200 of them made their money in technology industries. With ~300 million people living in the United States, you have a much much better chance of earning a billion dollars in the tech industry than you do winning the Powerball lottery.

And, one of the scary but true facts about the lottery is that those that win are more likely to file for bankruptcy 3-5 years after winning than members of the general population (i.e. - those that didn’t win the lottery). Whereas, in technology, wealth continues to grow even after team members are no longer involved in the day-to-day operations of their companies. For example, Bill Gates wealth as continued to grow due to his Microsoft stock ownership as well as other savvy investments.

So, what is it about the technology industry that leads to individual’s ability to earn such outsized wealth?

For many years, business was primarily a local endeavor. An entrepreneur might own a local store and serve her local community. Over time, businesses became national. The modern corporation was designed with broader ambitions and organized itself in such a way that it could serve a large population.

With technology, businesses can truly satisfy global ambitions at a much faster rate than was possible before. For example, Facebook was started out of a dorm room at Harvard in 2004. Less than 10 years later, it had more than 1 billion monthly active users (~15% of the world’s population). In 2017, 5 years later, Facebook now has more 2.2 billion monthly active users (~30% of the world’s population).

In prior years, this rapid scale would’ve been unheard of. Similarly, when we consider the iPhone. The iPhone was invented in 2007. 7 years after being launched, there are more than 1 billion iOS users.  Sometime in 2018, Apple is expected to ship the 2 billionth iOS device.

The ability to design, develop, launch and scale products using technology means that companies are able to grow their user base very quickly. And as the user base grows, the next milestones become progressively easier due to network effects that come from global scale.

With the growing , more customers learn about their products and they are able to leverage databases and storage at lower and lower costs. For example, Amazon developed an entire business around their broader need to utilize the cloud to power their online retail business. As they developed their data centers, they began to sell the excess capacity to other organizations that didn’t want to go through the hassle of building and managing their own data centers. With other organizations on board, they could fully utilize these data centers which continued to drive costs lower and lower for Amazon as well as their cloud computing customers.

Google was founded in 1998, 20 years later, they process 3.5 billion searches/day and 1.2 trillion searches/year. This level of scale would’ve been unheard of 30-40 years ago. As a result of being able to manage billions of users; queries on a daily basis, Google is able to attract employees who want to build products at global scale.  In return, advertisers want to utilize their products and services to connect with their customers. Ultimately, that enables Google to successfully monetize that success making their founders Larry Page and Sergei Brin enormously wealthy.  In fact, their combined wealth is on par ($96.3 billion) with Jeff Bezos (#1 on the list of world’s billionaires).

Business margins are calculated as revenue - expenses. In technology based businesses, you often have superior margins due to the efficiencies gained from the intelligent use of technology. For example, Amazon primarily makes software for their website that is used at a global scale to sell a wide variety of goods and services from their own inventory as well as that of 3rd parties. 

This software created by a team of developers does not require a group of skilled laborers to build an automobile like it would in manufacturing. In addition, this software along with an army of robots creates a high level of efficiency within their warehouses. As a result, Amazon’s cost to delivery their goods and services are much cheaper.  As a result, when comparing Amazon to other retail competitors, for many years they did not have to invest in physical retail locations. Instead, they own giant warehouses that are designed to move goods in and out as inexpensively as possible. This enables them to earn superior margins compared to their traditional retail competitors.

With superior margins, technology-based firms are able to invest the delta into improving the product and/or service for their customers. As this happens over and over again, the technology-driven firm often has a huge advantage of their non-tech firm due to meeting or exceeding the growing expectations of their customers. For example, with this competitive advantage, they are now able to purchase brick and mortal retailers like Whole Foods. Amazon famously calls this the flywheel of growth.

As developers learn more about how to give instructions to computers so that the machines can accomplish a task or set of tasks, they often develop a proprietary algorithm to deliver that outcome. Amazon, Microsoft, Facebook, Google and Tesla are the holders of numerous patents and proprietary methods to achieve their business results.

In fact, large technology firms like Apple, Microsoft, Google and Intel were each granted more than 2,000 patents in 2017.

Due to the challenges of other firms discovering how exactly they achieve these results, it creates a winner-take-all or winner-take-most environment with technology. For example, Google owns 90% of the search market. While there are other firms that compete with Google like Microsoft, Google has become the preferred search destination for customers. As a result, when developers are building new websites, they will work to optimize their sites to satisfy Google’s algorithm. This creates a virtuous cycle where the lead company defines not only their market position but how other firms who hope to use SEO behave in order to make sure that their sites are discovered.

In addition, technology firms intellectual property is often portable to other business they buy or develop internally. For example, Google owns YouTube. Video is such a huge part of modern life that most of us don’t even realize that we are using Google’s proprietary algorithms each time we search for a video on YouTube. In fact, many consider YouTube to be the second largest search engine in the world with over 1.5 billion users each month. Or, Facebook owns Instagram. As a result, Facebook is able to take their proprietary knowledge of social networking to help grow Instagram.  In fact, it is estimated that Instagram now has over 1 billion users.

There is no doubt that Google and Facebook were able to take advantage of their knowledge of search and social networking to help grow these businesses within their portfolio. For a new search engine or a new social network to displace billions of users will be extremely difficult especially when you consider the superior analytics available to track customer behavior that is integrated into technology platforms.

Let’s face it hard to become a billionaire regardless of what you do in life. There are nearly 8 billion people on the planet and only a very small percentage of them are billionaires. While earning billions in technology may not have the same ‘get rich quick’ feeling as playing the lottery, the data suggests that you may find a better path in pursue your riches through technology.