Value is captured by those who can create it

The global economy will double in size by 2050. Who will create and capture the US$90 trillion?

It’s hard to focus on value creation when a narrative of economic contraction and financial pressure is all around us. It’s in the news, boardrooms, and Zoom rooms. It’s heard in cafes and discussed in our homes. It affects our companies, governments, and our lives. We see it, sense it, and believe it to be true. 

What is harder to see is the vast economic value being created in the world. Although we may not see it in our immediate world, it is happening. 

Every 25 years, on average, the global economy doubles in size. By 2050 an approximate additional US$90 trillion of global Gross Domestic Product (GDP) will be created. 

This is explained by looking at historical data. Global GDP growth, from the mid-20th century onwards, has averaged around 3-4% per year. This equates to the global economy doubling about every quarter century. 

Who will create the US$90 trillion? Who will capture it?

Certain companies and sectors are more effective at capturing value due to factors such as their business model, their competitive positioning, the nature of their industry, and external economic conditions.

Many of the world's most valuable companies are in the tech sector. These include companies such as Apple, Microsoft, Amazon, Google's parent company Alphabet, and Facebook. They capture value by creating and selling innovative products and services, dominating their markets, and often building ecosystems that lock in users and create network effects.

The value creation and capture strategies used by companies in the tech sector can be implemented by companies currently in non-tech sectors. Case studies and frameworks will be shared in future Global Domination newsletters. My wish is for more business leaders in more places to achieve global domination in their space.

What did today’s biggest companies look like 25 Years ago?

In 1998, 25 years ago, the tech landscape was very different from what we see today. The value they create and capture today barely existed back then. Going back in time, these companies looked like the following:

Apple was primarily known as a computer company, producing the Macintosh line of personal computers. In 1998, they introduced the iMac, a revolutionary all-in-one computer with a distinctive translucent plastic design. The iPod, iPhone, and iPad were still several years away.

Microsoft was at the height of its dominance in the personal computer market. Windows 98 was released this year, and most personal computers around the world ran a version of Microsoft's operating system. The company also produced productivity software, notably the Office suite (including Word, Excel, and PowerPoint), which was widely used in business and personal computing. Microsoft's Internet Explorer was also one of the main web browsers of the time.

Amazon was still a relatively new company and was primarily an online bookstore. They were just starting to expand their product offerings, adding CDs and DVDs this year. The vast selection of products and services we associate with Amazon today, such as electronics, clothes, groceries, and streaming content, were not yet available. Amazon Web Services (AWS), the company's lucrative cloud computing platform, wouldn't be launched until 2006.

Google was founded in this year, operating out of a garage in Menlo Park, California. Its primary product was its search engine, which was still in its very early stages and was not yet the dominant force it is today. Other services like Gmail, Google Maps, YouTube, and the Chrome browser, as well as the creation of Alphabet as a parent company, would come much later.

Facebook did not exist in 1998. Mark Zuckerberg and his co-founders wouldn't launch Facebook until 2004, initially as a social network for Harvard students before expanding to other colleges and eventually the general public.

One device, many revenue streams  

25 years ago no one on the planet was walking around with an iPhone in their pocket or handbag. Today 1 billion people around the world carry an iPhone. 

It is a phone and it is so much more. 

The launch of the iPhone by Apple in 2007 transformed the company's business model and opened up several new lucrative revenue streams. That means phone sales for Apple, and so much more. This includes:

Hardware Sales: This is the most obvious stream of revenue. The iPhone itself became a major product for Apple, generating a significant portion of the company's total revenue. Over the years, the introduction of new iPhone models and versions has continued to drive sales and profits.

App Store: The introduction of the App Store in 2008 fundamentally changed the software distribution model and created a new revenue stream for Apple. Through the App Store, Apple gets a cut (typically 15-30%) of all sales, which includes paid apps and in-app purchases. This platform also allows Apple to control the software ecosystem of its devices, contributing to the overall user experience.

Services: Alongside the App Store, the success of the iPhone allowed Apple to significantly expand its services business. This includes iCloud (cloud storage and services), Apple Music (streaming music), and later additions such as Apple TV+ (streaming video), Apple News+ (news and magazine subscriptions), Apple Arcade (game subscription service), and Apple Fitness+ (fitness service). These services often require a monthly or annual subscription fee, providing Apple with a stable, recurring source of revenue.

Accessories and Other Products: The iPhone also spurred the development and sales of a wide range of accessories. This includes everything from iPhone cases and chargers to products like the AirPods and the Apple Watch, which while standalone products, are also closely tied to the iPhone ecosystem.

Looking backwards to look forwards

In 2003 (those of us who were old enough at the time!) we may have been walking around with a Nokia phone. They were largely feature phones with basic capabilities. These included calling, texting, simple games (like Snake), monophonic ringtones, basic cameras on some models, and small colour or monochrome displays. The iconic Nokia 3310 and Nokia 1100 were popular at this time.

Back then, while playing Snake, it would have been near impossible to imagine all that iPhone or other smartphones can do in 2023. Having access to a mini-computer at all times has transformed how we work, live, learn, travel, and play. We experience the world differently. 

And, Apple has evolved to be one of the world’s latest companies. They experience global domination in key sectors they are in. they experience a world that is different from companies struggling to respond to external economic and competitive pressures.

Based on what they have achieved in less than 25 years, summarised above, what do you think Apple’s business model could look like by 2050? 

If you’re stuck answering that, it’s ok. It is really hard to make that type of prediction.

Value is being created today

Based on past performance, we could anticipate that Apple will execute a plan to create and capture value each year over the next 25 years.

None of us know what the future will look like with certainty. However it is certain that value is being created in the world each year. The added US$90 trillion global GDP by 2050 is being driven by business leaders with the ambition to create value, not by design, but by default.

These companies seek global domination. To be the best in their industry. To solve a problem that can scale globally. And, they know how to do it. They understand what works in the business world today. They do that. They are less exposed to the headwinds and challenges that other business leaders currently face.

Knowing what’s working in the world and making it work for you is key.

I believe that to capture value in the world, you need to know how to create it. 

We tend to focus on our immediate world. For most, it is one of economic contraction and financial pressure. But when we expand our worldview, we can see that there are pockets of value creation. There is a world out there that is working for business leaders. Companies are capturing value today and tomorrow.

What does it mean for you? Look up and out into the world and ask:

What are you doing today to create part of the next US$90 trillion? Will you capture it? If not you, who will?