Apple, Zuck, Elon, and the lesson of Microsoft Windows

• Even though it's taking way longer than expected, Apple won't give up on building an EV.

• Mark Zuckerberg is still spending massively on AI and the metaverse.

• It's about building the next big platforms. If you're not in the race, you're not really a player.

Two things in tech shocked me this month.

First: Apple has been trying to build an electric vehicle to compete with Tesla for at least a decade, and it's still years away, according to Mark Gurman, the world's leading Apple reporter.

Second: After splurging tens of billions on the metaverse, Meta CEO Mark Zuckerberg is now spending an estimated $18 billion on GPUs to chase the generative AI craze.

I asked my hedge fund manager friend about these hyper-expensive long-term projects. They are risky, given the huge costs. Why pursue them so aggressively?

My friend helps run one of the best performing and most secretive hedge funds. I can't reveal their name. However, this person has been investing for more than 2 decades. They know their stuff and I regularly tap into this well of experience for advice.

Without pausing, this investor said "I think Zuckerberg's metaverse bet could actually work out." He shares similar views on Apple's Vision Pro goggles, which I've questioned in the past.

"The lesson of Microsoft Windows"

Then this hedge funder schooled me on the "lesson of Microsoft Windows."

This operating system was arguably the first major digital platform for the masses. It took many years to develop and massive upfront spending. The result was an ecosystem of hardware providers, developers, and users that generated so much lock-in and profit that Microsoft was accused of antitrust violations.

From that point on, any serious technologist wanted to build the next big platform. Others that came after include Google's Chrome/Search/Web empire, its Android mobile operating system, and Apple's supreme iOS. Meta's social media platforms and Amazon's AWS cloud business probably qualify. And Tesla's business might be a platform, too. (More not that later).

"Dreamy" businesses

Platforms share similar attributes that make them massively expensive and time-consuming to build, but way more profitable and long-lasting than any other businesses on earth.

Billions of people and businesses rely on platforms. As they are used more, they become more useful and more valuable. They are almost impossible to compete with once they are up and running. And as Apple shows, there are endless ways to squeeze more money from platforms, even if antitrust regulators shut down bits of them.

Matthew Ball, a venture capitalist and former Amazon executive, called platforms "dreamy" businesses in an insightful blog last year.

He also pointed out that if you don't own a big platform, your life kinda sucks. Zuckerberg has the scars to prove it. One flick of Apple's privacy wrist and about $10 billion of Meta revenue disappeared. This scared the crap out of other tech companies. Google pays Apple about $20 billion a year to keep the iOS giant distributing its search engine. Not fun.

The biggest bets

This is why big tech companies are investing 100s of billions of dollars to find the next big platforms. They might fail, and that will be an epic waste of money, like the world has never seen before. But, if they succeed, the profit gusher will be so much bigger, and competitors will bow down — as most companies do today to the iOS god.

"Though the accumulated losses are terrifying, they're nevertheless dwarfed by the potential profits, as well as the security that comes from owning your own end-to-end platform versus relying on another," Ball wrote.

To give you a taste of the size of this phenomenon, here are recent research and development budgets of some Big Tech companies. This is just for one year:

Google: $40 billion

Meta: $35 billion