A century after Henry Ford and his Model T heralded the modern car industry, the stratospheric rise of Elon Musk’s Tesla, the electric car pioneer, is signalling a significant turning point for that industry. A century ago, the car industry was enabled by the emergence of a number of key supporting industries such as oil, steel, aluminum, rubber and leather. It is therefore ironic that the rise of the electric car has become one of the existential threats to oil companies and that century-old car manufacturers have been left in the dust by failing to shed combustion engines fast enough.
With the help of our own deep history database, we engaged in a study of global leader companies over a century in order to map the rise and fall of these giants. In 1896, Charles Dow, then editor of the Wall Street Journal, created the original Dow Index with twelve constituents. The only original Dow member recognisable today is General Electric. The rising demand of steel for skyscrapers and the car industry motivated John Pierpont Morgan to acquire Carnegie Steel, eventually creating the United States Steel Corporation in 1901, the world’s first billion-dollar company. As already mentioned, mass production of cars meant that American households went from almost no ownership in 1900 to owning close to one car per household in the 1930s. This spurred the entrance of General Motors and Chrysler to the Index in 1930.
The increased mobility of households also changed the face of the retail industry.
In the 1920s, Sears, a US retail business evolved from a mail order business to one offering mass produced goods in out of town stores, which had become accessible to consumers in their newly acquired cars and Woolworth (no relation to our own retail chain) also went on a rapid store expansion spree. Yet again, history perhaps did not repeat itself, but it certainly rhymed. The retail industry has been altered globally by the rise of e-commerce. Amazon, which started off as an online purveyor of books, now is making forays into the brick and mortar space. Similarly, Alibaba in China has evolved to expand its marketplace business to offering an experiential food shopping experience, where shoppers can click on items as they move down the aisles and get those delivered to their homes. The forthcoming listing of its financial services arm, Ant, is also a sign of China challenging the American hegemony.
We tracked the origins of the current oil majors all the way back to 1885 when John D Rockefeller founded Standard Oil. The company was broken up in the following decade with its offspring Exxon and Chevron remaining dominant industry players for over a century. Exxon was replaced in the Dow Index only this year by software sensation Salesforce. Perversely, the much maligned Eastman Kodak, which was founded by George Eastman in 1888 and has been synonymous with the ubiquitous Kodak moment, remained a global leader for three-quarters of a century before failing to embrace digital photography, which led to its ignominious end in 2012. We created a proprietary survival index to measure quantitatively how long global leaders remain at the helm of their respective industries.
Global Leaders survival index
Source: Ashburton Investments
We had to rewind to the roaring twenties to find a period of significant change in leadership as depicted above. The only other period which had such an equivalent sea change was the era of irrational exuberance of the late 1990s. Our historical database also provided us with some interesting insights into the current internet giants dominating the Nasdaq.
In the 1970s, the invention of the microprocessor enabled the commercialisation of the desktop computer in the 1980s. Perversely, IBM, a Dow member from the 1930s, did not foresee a great future for desktop computers. Microsoft, however, capitalised on this trend and made its entry in the Dow in the 1990s. As the world wide web became the new digital super highway, the dot.com bubble provided for a number of newcomers. Our index shows a massive change in global leadership for two decades as many Dow veterans failed to adapt and new giants rose out of their ashes.
It is a lesser known fact that when Eastman Kodak filed for Chapter 11 in 2012, they sold many of their patents to the likes of Apple, Alphabet, Facebook and Amazon. It is therefore ironic that as Kodak exited the Dow Index, Apple took its place and, armed with Kodak’s patents, it has dominated digital photography with a major share of the 1.7 trillion photos taken digitally last year alone. Though digital photography became mainstream, the winner was not digital cameras. Digital camera sales dropped by 87% since 2010 as per Statista. With the rising trend of social media and smart tag culture, the smartphone photography ecosystem emerged. With the exponentially increasing need for storage and computation, cloud computing and Graphics Processing Units picked up the trend baton. One hundred and seventeen years after the emergence of US Steel as the first billion-dollar company, Apple in 2018 became the world’s first trillion dollar company. In just two years, in August 2020, the market cap doubled to US$2 trillion.
Global leaders are companies which both shape and mirror consumer trends. History validates that trends typically do not exist in silos but create a domino effect, though the domino speed compared to 100 years ago has accelerated massively. Domino trends (as we would like to coin the term) is one trend igniting another trend creating an ecosystem loop of global leaders. Currently, the market cap of AAA FM (Apple, Amazon, Alphabet, Facebook, Microsoft) is equivalent to 400 of the other constituents of the S&P 500.
However, as witnessed by the break-up of Standard Oil a century ago, their dominance is often the seed of their own destruction.