Revisiting the Big Tech ‘Frightful 5’

FANG, FAANG+ and MAMAA are some of the acronyms used in reference to high-performing tech companies. And even though the ‘Frightful 5’ label has vanished since being introduced in 2016, things have come back full circle to the companies it represented, because it was based on a more profound observation.

The acronym FANG was originally popularized by Jim Cramer in 2013, and it stood for Facebook, Amazon, Netflix, and Google. Although most sources claim Cramer coined the term, it was conceived by Bob Lang to describe ‘turbocharged’ ‘momentum’ stocks with a lot of room to grow at that time.¹ The term was later extended to FAANG to include Apple, and there are mutations under the label FAANG+ which include additional stocks.

Even though markets have changed over the years (and two of the corporations are now operating under a different name), the FANG label survived at least until 2021, and its meaning in some circles shifted to represent more broadly large modern technology companies.

Frightful Five #

In 2016, Farhad Manjoo picked a different group of five, and he based it on different criteria than Lang. In the title of his article in The New York Times, he proclaimed that the Tech’s ‘Frightful 5’ Will Dominate Digital Life for Foreseeable Future.²

The companies he selected were Alphabet (Google), Amazon, Apple, Facebook (renamed to Meta in 2021), and Microsoft. A quick look at the reasoning behind Manjoo’s selection and the present situation confirms not only that these ‘Frightful 5’ have dominated in the years since the article was published, but we can also safely repeat the prediction that they will continue to dominate “for the foreseeable future.”

The Inescapable Dynamic #

If you have not read the original article, I fully recommend you do. In fact the five years retrospect makes for an even more fascinating re-reading of it. Not because these five companies have indeed enjoyed an unshakable position – everyone knows that. But because of seeing the key insight in play: While these companies are fiercely competing with each other, they are only getting stronger thanks to everyone else.

The idea that a new successful challenger can beat one of the ‘Frightful Five’ because “someone, somewhere in a garage is gunning for us,” as Alphabet’s Eric Schmidt likes to say, is a motivational romantic fable. The original article did not suggest that other companies could not succeed, and neither am I. But the success of new entrants leverages the platforms of the ‘Frightful Five,’ further cementing their own positions.

The worst threat the ‘Frightful Five’ can encounter is really an opportunity – a growing, successful company that one of the big ones will acquire. (Ironically, partially with the money that the acquisition target and other companies spent with them.)

Which Is Why Microsoft and Not Netflix #

There was a good reason why Netflix was included in the 2013 original selection of FANG companies (and continues to be included in many of its current variants) but excluded from the ‘Frightful Five.’ The point to remember is that FAANG+ is about rising tech stocks high upside.

The ‘Frightful Five’ concept is not concerned about stock price potential but with being in a position that is unshakable because the given company is indispensable on the path to success for anyone else. Unless you are producing media products that might require a deal with Netflix, you do not need Netflix. But you will need most, if not all, of the ‘Frightful Five:’

• Office capabilities (communication, real-time collaboration, storage, office suite) require either a Microsoft365 license or a combination of multiple tools; financially benefitting (directly or indirectly) the same ‘Frightful Five.’

• Software development is essentially impossible if one needed to avoid all of the following: Visual Studio, Windows Linux Subsystem, Azure, and GitHub.

• Cloud computing and content delivery heavily relies on Amazon and Microsoft, with Google fighting hard for a larger share.

• Selling, delivering, and marketing your products at scale is going to be very hard without Facebook, Apple, Amazon, and Google.

The list could go on and in each case, most alternatives, in turn, leverage services and capabilities of the same five companies.

Beyond 2021 #

The dynamics described in the original article will continue to operate and strengthen the position of the ‘Frightful Five.’ Yes, more companies might join the club (Salesforce could be one), but it’s very unlikely that any of the existing members would lose their standing.

The New York Times article explored other angles, including thoughts on the competitive advantage that the ‘Frightful Five’ will enjoy because of the huge amount of customer and market data that they have amassed and which their new and future competitors obviously cannot have. With the importance of such data for building powerful AI, it is likely their position is even less assailable now.

Could anything threaten these companies? Speculating about the most likely sources of downfall for the current five, the article pointed to either government regulation, the companies’ own overextension, or an emergence of companies in China that would grow independently from these established players.

The label ‘Frightful 5’ might have not caught on because the name is not as flattering, even though it proved flexible with the rebrands. But the more important point is that the thoughts in the ‘Frightful 5’ article shed light on a lasting principle behind the dominant technology companies, rather than a point-in-time observation of ‘momentum’ stocks which was behind FANG.