The Shape of Code

How large are computer companies, compared to each other and to companies in other business areas?

Stock market valuation is a one measure of company size, another is a company’s total revenue (i.e., total amount of money brought in by a company’s operations). A company can have a huge revenue, but a low stock market valuation because it makes little profit (because it has to spend an almost equally huge amount to produce that income) and things are not expected to change.

The plot below shows the stock market valuation of IBM/Microsoft/Apple, over time, as a percentage of the valuation of tech companies on the US stock exchange (code+data on Github):

The growth of major tech companies, from the mid-1980s caused IBM’s dominant position to dramatically decline, while first Microsoft, and then Apple, grew to have more dominant market positions.

Is IBM’s decline in market valuation mirrored by a decline in its revenue?

The Fortune 500 was an annual list of the top 500 largest US companies, by total revenue (it’s now a global company list), and the lists from 1955 to 2012 are available via the Wayback Machine. Which of the 1,959 companies appearing in the top 500 lists should be classified as computer companies? Lacking a list of business classification codes for US companies, I asked Chat GPT-4 to classify these companies (responses, which include a summary of the business area). GPT-4 sometimes classified companies that were/are heavy users of computers, or suppliers of electronic components as a computer company. For instance, I consider Verizon Communications to be a communication company.

The plot below shows the ranking of those computer companies appearing within the top 100 of the Fortune 500, after removing companies not primarily in the computer business (code+data):

IBM is the uppermost blue line, ranking in the top-10 since the late-1960s. Microsoft and Apple are slowly working their way up from much lower ranks.

These contrasting plots illustrate the fact that while IBM continued to a large company by revenue, its low profitability (and major losses) and the perceived lack of a viable route to sustainable profitability resulted in it having a lower stock market valuation than computer companies with much lower revenues.