The stock opened at $28, but it rocketed to over $75 before closing at $58 for the day. For both the company and the rest of the world, the $3 billion market cap signaled that a new era had arrived. Netscape's public offering in February 1995 – dubbed “The IPO That Inflated the Dot‐Com Bubble” – sparked the imagination of entrepreneurs and investors alike.

The upstart soon found the incumbent a powerful foe. Microsoft had itself outmaneuvered IBM as a scrappy upstart 20 years earlier to establish the dominant operating system for personal computers. Now it quickly responded to the threat from Netscape's internet browser. By bundling Internet Explorer into its ubiquitous Windows software, Microsoft soon supplanted Netscape and protected its position as the gateway for computer users. Netscape's share of the browser market plummeted from over 90% to below 10%, and the company was eventually sold to AOL, another high‐flying‐upstart‐turned‐incumbent that would be undone by the dynamism of the era a few years later.

Microsoft's success in fending off the challenge from Netscape was both ironic and instructive. A model of upstart entrepreneurship, it had created thousands of “Microsoft millionaires” after its own IPO in 1986. Despite Netscape's difficulties, its public offering a decade later unleashed a new and greater wave of enthusiasm among aspiring entrepreneurs. Both helped generate increased investor interest in venture capital investing and technology public offerings. The result was an explosion of entrepreneurship that has continued to the present, despite the collapse of the “dot‐com” bubble that threatened to stop everything in its tracks before it really started.

Netscape's challenge to Microsoft and the latter's response is also important in highlighting both the new source of competitive advantage for incumbents – “network effects” – and the new risks of “disruption” from emerging platform technologies in the digital age. Reminiscent of economies of scale from earlier eras, the essential concept around the former is that having large numbers of users creates barriers to entry through usage patterns that are hard to switch (akin to the “QWERTY” keyboard layout). These barriers rise with more users and additional features, which makes it easier to lock customers in and keep potential competitors out. Companies and their networks become more valuable with each incremental user, each of whom adds little cost while making the network deeper, more robust, and harder to abandon. As these companies gather data and turn it into proprietary insights, the advantages become even stronger.¹

This advantage isn't ironclad, however, and incumbents such as Microsoft have needed to constantly copy or acquire new applications to maintain relevance, using its control of operating systems to facilitate the deployment of its own versions. Early “killer apps” such as the spreadsheet, word processing, and email threatened Microsoft, and the company had to come to market quickly with copycat versions to fend off these threats, or else acquire nascent firms to preempt the risk. This was essentially the same strategy it deployed against Netscape. It would be the blueprint for maintaining competitiveness in the software era.

Microsoft's victory in the “browser wars” also challenged regulators. The U.S. Department of Justice (DOJ) brought a civil antitrust case against the incumbent in 1998, arguing that its Windows arrangement with computer manufacturers was unfair and that bundling of the Explorer browser within Windows was illegal. For its part, Microsoft claimed its approach reflected continued innovation and asserted, in effect, its own right to compete in product development. The lower court found in favor of the government but Microsoft appealed, eventually settling by agreeing to provide greater access to its operating system. Yet by the time the case was decided, Microsoft had already in effect won the real war against the upstart competition. The regulators would not stop, however, and Microsoft has continued to face scrutiny from the DOJ and especially from European regulators.²

Indeed, the second element in the Netscape IPO story has proved the more important one. As with incumbents in past eras, Microsoft's biggest threats ultimately came from new firms. For all its vaunted network effects, the company has also had to stay innovative in order to thrive. The company initially faced challenges to its operating system from “open systems” like Linux, where developers freely shared source code, and it was slow to address the smartphone market, where Apple iOS and Google's Android grabbed market share. IPO riches have attracted abundant entrepreneurs and risk‐tolerant venture capital, so incumbents have faced a continual flow of new ideas and innovation. And playing catch‐up did not always work. Upstarts such as Google, Amazon, and Facebook, as well as a resuscitated Apple, came to dominate emerging areas such as search, e‐commerce, and social media, and then each sought to broaden and deepen their engagement with consumers, thereby clipping Microsoft's preeminence while joining its ranks as powerful incumbents. While these companies indirectly challenged Microsoft, they could not unseat it, and all of these behemoths topped the astounding $1 trillion market valuation by 2021.

While Microsoft maintained its position, many established companies would not be as smart or as fortunate. Ambitious entrepreneurs, new technologies, a growing venture capital industry, a robust stock market, and acquisition‐hungry incumbents needing to stay ahead all created a virtual cycle of innovation and entrepreneurship that came to define the era. And this climate spilled over into other more traditional industries, in which traditional incumbents found themselves forced to respond to entrepreneurs with new ideas and technologies or else face the consequences. The balance between upstarts and incumbents was recalibrated.

The Revenge of the 1960s

The Netscape IPO was the clarion call that unleashed the internet economy, bringing with it waves of technological innovation and establishing the venture capital industry as a potent force in driving economic growth. Yet many of the underlying forces that enabled it had been well underway by that time. The entrepreneurial surge that led to the internet and digital economy of the late 1990s and into the first two decades of the 21st century was, in fact, a generational one. Having grown up with the Civil Rights struggles, the Vietnam War, environmental pollution, and Watergate, the postwar Baby Boomers had no reverence for big institutions.

Social rebellion against the Establishment went hand‐in‐hand with the willingness to challenge or outmaneuver economic institutions that earlier generations had treasured. Along with their anti‐authoritarian streak, many tech pioneers dabbled in drug use and had close ties with the anti‐war movement and cultural renegades such as Ken Kesey.³ Even at traditional MIT on the East Coast, a longtime bastion of military contracts, a deep‐rooted “hacker” culture celebrated challenges to authority. There was something Emersonian in their story, reminiscent of Benjamin Franklin, too, and of Thomas Edison. John Perry Barlow, the Grateful Dead lyricist who published his “Declaration of the Independence of Cyberspace” in 1996, was fond of quoting Thomas Jefferson.⁴

Over the next several decades, these challengers and ensuing waves of successors launched visionary ventures that disrupted incumbents, reshaped the economic landscape, and overturned long‐held assumptions about how business worked. It was an extraordinary reversal of the conventional wisdom that said the American economy could succeed as a comfortable oligopoly of big business, big unions, and big government. A new consensus emerged, lauding individualism, innovation, creativity, and entrepreneurship. In fact, many of the successful pioneering upstarts would find themselves disrupted within a few years, as the velocity and intensity of innovation and competition and the adoption of new technologies accelerated.

By the early 2020s, virtually all facets of the American economy were transformed. The country enjoyed more than three decades of growth, innovation, and prosperity, despite challenges such as the “dot‐com crash” of 2000, 9/11 terrorist attacks, 2008 financial crisis, and costly wars in Iraq and Afghanistan. Low consumer prices, high stock prices, and a vast array of new products and services made America the envy of much of the world, and nearly every other country sought to emulate American entrepreneurial capitalism, racing to create “the next Silicon Valley.”

At the same time, persistent issues remained around income inequality, the challenges of small businesses, climate change, and the dominance of large companies – particularly the now massive Big Tech firms. Many of the social issues that the hippies fought for were now landing at their own New Establishment doorsteps 50 years later. With the outbreak of the COVID pandemic, many of the questions regarding American entrepreneurial capitalism gained momentum, led mostly by a new generation.

Bringing Down the Barricades

In many respects, the fall of the Berlin Wall in 1989 was the signalling event of the era. Most saw it as validation of the American economic model and a new consensus around freedom, though what that meant going forward was open to interpretation. Ronald Reagan, who denounced college protesters when he was California governor in the late 1960s (famously calling them “communist sympathizers” and “sex deviants”), pushed for greater military spending and deregulation when he was president. Ironically, he opened the way for the billionaire generation, some of whom in fact had been communist sympathizers in their student days.

The Reagan and Bush administrations’ embrace of free markets in the 1980s gave a green light to free enterprise, and their approach largely continued through successive administrations, both Republican and Democrat. Deregulation assisted incumbents by reducing costs and helping them to compete globally, but it also enabled upstarts and eased market entry. Antitrust enforcement fell substantially as “consumer welfare” rather than market share became the standard, and companies could restructure and vertically integrate so long as they had a path to share some of the savings with consumers.

Though Bill Clinton ran as a new‐generation candidate, he adopted this consensus, changing the way the Democratic Party engaged in economic matters. In much of his economic policy he acted like a traditional Republican – reducing capital gains taxes, shrinking the deficit, “reinventing government,” and allowing the market to act with little intervention. As in the previous administrations, regulations were limited and antitrust policy was light. The federal government gave companies latitude to transform themselves.

The Clinton Administration also took important steps to encourage new technologies to develop, particularly the internet and communications. The most noteworthy legislation was the Telecommunications Act of 1996, which sought to update or dismantle New Deal restrictions. The legislation allowed firms (including the Baby Bells) to combine as well as to cross into new areas, leading to substantial consolidation in the telecommunications, radio, cable, and other industries, despite state and local regulations.⁵ But while expanding property rights, it also bolstered the right to compete by requiring incumbents to give new entrants access to their networks, encouraging interoperability, new technologies, and choice. One important feature of the legislation was telephone number “portability,” which allowed consumers to switch carriers without the loss of personal numbers.⁶

Aside from transforming the telecommunications and media industries – while maintaining the entrepreneurial balancing act, several of the act's provisions remained at the center of controversy for decades. Section 230 of the Communications Decency Act (part of the 1996 Act) gave immunity to online service providers related to third‐party content, a provision that supported the nascent industry but became ripe for review as Facebook and Twitter became powerful incumbents 20 years later. Similarly, as digital access became critical and bandwidth providers consolidated and sought differential prices for speed, the issue of “net neutrality” under the Act became the subject of heated debate and litigation in the 2010s, a modern riff on the price discrimination furor of the Standard Oil era.⁷

The Telecommunications Act was criticized by some as going too far in enabling consolidation.⁸ But the result of the act was that many incumbents found themselves on the defensive, while consumers saw increased innovation and choice and lower costs. More broadly, the act helped to recalibrate the tension between upstarts and incumbents in an era of lesser government intervention and in which the nature of both property and competition was changing. Incumbent property rights morphed into an incumbent's right to compete and innovate without government intervention, while an upstart's right to compete focused on market entry and access. Key questions emerged on the boundaries between technology and the products or services it enabled, the rights and ownership of data, and the nature of competitive advantage.

The Supreme Court and other courts also wrestled with how to address new technologies. With e‐commerce, for example, it wasn't clear where companies were transacting business, especially for tax purposes. In Quill Corp. v. North Dakota (1992), the high court ruled that a company cannot be taxed at the state level if it lacked a physical presence in that state, a decision that helped spawn Amazon; the decision was effectively overturned 26 years later as e‐commerce became a pervasive way of shopping.⁹ The ease of copying and distributing digital information also created issues around the bounds between information platforms and property rights for digitized content such as music, books and print media, videos, and eventually movies and TV shows. An early test case involved Napster, which presented itself as a peer‐to‐peer file sharing system meeting the definitions of “fair use” and thus exempt from copyright liability. The courts, however, ruled that it infringed on copyright by abetting piracy.¹⁰ Yet Uber, Airbnb, and other companies used a similar argument about information platforms to claim exemption from local regulations, and they were often successful. Traditional legal areas such as franchise law had to adjust as well, as courts ruled that companies could offer products over the internet despite franchising agreements that required them to work through local distributors, a rebalancing of property rights in order to facilitate innovation and competition.¹¹

As the “innovation economy” took off, new ways of doing business became prized business assets, and the patent law system tried to adjust accordingly. The lines between technology and processes became murky, and the Patent and Trademark Office relaxed the standard limiting “methods of doing business.” This move triggered an explosion in business creativity, but also a flood of patents designed to protect existing advantages or claim broad powers.¹² Those moves engendered a counterreaction as regulators worried about entrenching incumbents, so the Patent Office sharply limited these patents in 2005.¹³ Meanwhile, under President Barack Obama, Congress updated the patent laws more broadly, including a provision that modified the review process for patents that were already issued, in part an early effort to rein in “patent trolls” that had been acquiring pools of intellectual property and suing large companies.¹⁴

The most complex issues involved antitrust and centered on software companies with network effects, but successive administrations preserved a largely hands‐off approach. Government efforts that did try to limit the power of new firms were not especially effective. The high‐profile case against Microsoft defined the issue well, as the company settled with the government in 2001 by modifying some practices while securing its own right to continue to innovate. The case and the oversight nonetheless distracted the company and slowed its entry into new areas, notably its attempted acquisition of Quicken and its efforts in the smartphone market. It would take almost two decades before the U.S. government would reassert itself aggressively against the new platforms; the European competition authorities, however, continued to challenge not just Microsoft but the other large American digital firms.

The New Consumer Market

The entrepreneurial ferment went far beyond high tech, into airlines, steelmaking, and stock brokering. A common path to disruption was targeting price‐sensitive customers willing to forego some amenities. Thus JetBlue, Charles Schwab, and other discount providers gradually moved along the learning curve, gained scale, and added many of those amenities. Incumbents were often quite rationally stuck in an “innovator's dilemma,” hesitant to match the discounters or switch to new technologies lest they antagonize their core, high‐paying customers. U.S. Steel lost so much market share to Nucor, which started out 1968 as a steel recycler, that it dropped out of the S&P 500 altogether – an amazing fall for Carnegie's seemingly unstoppable creation.¹⁵

Other upstarts attacked or developed the high end of the market, offering affordable luxuries for niche markets with a dash of cultural cachet. Trendy coffeeshops, craft beers, boutique hotels, “fast fashion” labels, and organic food purveyors first established themselves, then gradually challenged the great mid‐market brands that had dominated consumer products for most of the 20th century. The era's culture of individuality played a role, as people rebelled against the uniformity that had built the incumbent brands. Niche providers enabled consumers to better express themselves, while the internet and alternative media outlets such as Etsy greatly reduced the cost of marketing for artisans and others. It was easier than ever to scale up a business model focused on the “long‐tail” of niche offerings.¹⁶ Rising social concerns about environmental pollution, diet‐based diseases, and exploitative supply chains gave upstarts many openings for products and brands, at least in consumer goods.

Established companies that became nimble or mastered new technologies could also play this game, either by expanding from regional to national markets, or by exploiting capabilities that their larger rivals ignored. New database marketing and the use of information became a particularly important new core competency for some. Capital One in banking, Progressive in insurance, and Enterprise in rental cars combined new technologies and innovative practices to challenge their dominant rivals both old and new. Many national brands tried to establish sub‐brands geared to these concerns, but with mixed success because these had questionable authenticity.

In retail, the rise of new “big‐box” companies as well as specialty retailers created a barbell effect, essentially squeezing out department stores in the middle. Companies such as Walmart and Starbucks embodied the newest generation of upstarts challenging traditional competitors, only to face new challenges as e‐commerce and artisanal providers emerged later.

Founded in 1962 by former retail franchisee Sam Walton, Walmart grew initially in rural areas underserved by major retailers. As it gained scale, it relentlessly worked for lower costs, internally and with suppliers. Then in the 1980s, it committed aggressively to systems that integrated its logistics with suppliers. The new technology enabled another wave of cost‐cutting and proved a major competitive advantage as the company entered other markets. By the 1990s its low prices were undermining Sears and Kmart, as well as thousands of incumbent Main Street merchants that had survived previous onslaughts. The latter sought political protection but with little effect.¹⁷

Yet even Walmart's dominance proved only temporary. The company faced its own disruption as Amazon emerged and drove its own technological and platform advantages. Walmart struggled for years to compete on the internet – and ultimately realized it needed a more aggressive approach. It paid $3 billion for another e‐commerce upstart, Jet.com, launched only two years earlier. Walmart survived and even thrived, largely a result of its ability to address this technological disruption and changes in consumer behavior. Other retailers were not as astute or as lucky.

Likewise, the coffee chain Starbucks gained popularity in the 1980s by championing individuality and a “cool factor” through beverages made to order by “baristas.” By 2010 it had grown to 20,000 quite similar locations worldwide, the face of a new trend of mass affluence and affordable luxury. But over time that uniformity gave an opening for upstarts who claimed a more authentic environment than the global megacorporation. Starbucks responded to preserve its cultural resonance, expanding its menu with ever more specialized beverages, often fair‐trade and organic, and offering itself as a replacement to offices in the increasingly distributed work environment of freelancers and flexible employees. Both paths helped, but neither amounted to the kind of entry barriers that incumbents in earlier eras had enjoyed.

Financial Engineering and Financing Engineers

Aside from new technologies and changing consumer and cultural norms, another powerful breakthrough occurred in finance. The august New York Stock Exchange came under challenge from Nasdaq, which in turn faced competition from new virtual trading networks. Discount firms, mutual funds, and then index funds such as Vanguard disrupted brokerages and money managers. Apps such as Robinhood are now disrupting those firms. New kinds of commercial paper freed firms from depending on large commercial banks, while the money market drained savings from stodgy local banks. Investment banks met their match in sophisticated institutional investors.¹⁸

The dot‐com crash in 2000 put a temporary halt on some of the euphoria in the technology sector, with the Nasdaq index declining precipitously. Some notable start‐up firms such as Webvan went out of business, but others used the opportunity to consolidate or enhance their positions. Large incumbent firms faced a similar challenge with the financial crisis of 2008. In an implicit recognition of the critical role of select big companies, banks deemed “too big to fail” were rescued, as were certain companies such as General Motors (in large part to protect workers and car dealers). The rescue sparked a populist outcry. The crisis hit small businesses particularly hard. Approximately 1.8 million small firms went out of business in the ensuing two‐year period – but not some entrepreneurial “greenshoots” that drove growth through the period and beyond. Tesla was founded in 2003, Facebook a year later, and Uber in 2009. By 2013 the stock market had recovered, with technology firms becoming an increasing share.

Three main trends developed. The first overarching change was the continued growth of financial instruments and new capital sources to support growth, buyouts, and even takeovers. This put additional pressure on public companies to perform and also paved the way for increased shareholder activism. As noted in the previous chapter, deregulation in the 1970s had freed institutional investors to go beyond blue‐chip firms, and by the mid‐1980s high‐yield “junk” bonds were heavily subscribed. Despite Michael Milken's legal troubles and dissolution of his firm, Drexel Burnham Lambert, the lessons and opportunities remained. Private equity firms and hedge funds grew exponentially in size and number, and much of their work proved critical in assisting larger companies that sought to restructure themselves in order to remain competitive. By 2020, private equity funds ($2T) and hedge funds ($3T) had record sums under management.

Even big companies that succeeded in staying strong took steps to change the way they competed. Under pressure from activist investors, many of them tightened their use of capital and reduced their empire building. They adopted a more short‐term orientation that focused their operations and reduced investments in R&D and marketing, choosing to make acquisitions as a way to stay ahead. They initiated a wave of employee downsizing and outsourcing of all but the core functions. The result was faster growth rates, higher margins, and stronger balance sheets, but arguably at the cost of capabilities that could fuel long‐term success. Indeed, the move toward doing things “virtually” and a dependence on third parties for key capabilities left many of them vulnerable to new entrants who could work with those same suppliers.

Some of the biggest names took the lead in transforming themselves, ever mindful of how new technologies might be changing the foundations of their industries.¹⁹ IBM shed its once dominant hardware units, while ADP and Hewlett Packard split in smaller units to gain focus and flexibility. Cisco Systems, at one point among the most valuable firms in the country, developed a strategy of “spin‐ins” to help keep itself and its innovation processes nimble.

General Electric at first seemed an exception, a vigorous incumbent that transformed itself before upstarts forced the issue. It moved aggressively into new industries while selling off mediocre divisions. Under CEO Jack Welch it worked on self‐renewal with initiatives such as “destroyyourbusiness.com,” an effort to preempt disruption. But much of its success in the 1990s actually came from short‐term financial gains, which went south after 2000. In 2018 it fell off the Dow Jones index, after an astounding 110 years. By 2021 it was scaling back to focus on aerospace.

The second main force that transformed finance was the exponential growth of the venture capital industry. Here the Netscape IPO was indeed a signature event, demonstrating that risky start‐up firms could generate exceptional payouts. Even the bursting of the dot‐com bubble in 2000 only temporarily dampened the animal spirits. Investors plowed money into venture funds, eager to get in on the action. The industry raised $7 billion in 1995, topped $100 billion at the height of the internet boom in 2000, and then continued at an annual rate of $20 to 30 billion for several years. In 2014 the investment level grew again, and the industry raised $75 billion; by 2020, it topped $125 billion.²⁰ More important, the industry invested over $150 billion into U.S. firms that year, while “exit value” for venture‐backed companies topped $230 billion.²¹ And many of these numbers doubled in 2021. Aside from the growth of firms, individual angel investors became increasingly engaged; the America Jobs Act (2011) encouraged new sources of fundraising such as crowdsourcing in part to open up investment opportunities to more people. By 2020, venture capital firms had over $450B under management.

The third important trend in finance was the increase in stock ownership and the broadened range of choices for individuals looking to invest in the stock market. Important policy initiatives that began in the 1970s and continued through this period encouraged stock ownership, particularly automatic enrollment in 401(k) plans and the development of the IRA.²² As a result, stock ownership increased significantly, from 13% of American households in 1990 to over 50% in 2020 (it reached a peak of over 60% in 2007 but retracted for several years after the financial crisis). This is substantially above the percentages in most other countries.²³ However, within this group there is significant disparity, particularly by race and ethnicity, which has exacerbated inequality as the stock market continued to rise.²⁴

Finally, in the area of corporate law and governance, the Supreme Court decision in Citizens United v. Federal Election Commission (2010) essentially gave corporations the right to make financial contributions to political campaigns. A step in the long chain of cases involving corporate rights, including Santa Clara and Virginia Pharmacy described in early chapters, the decision brought with it the risk that large corporations would wield too much power. The backlash, however, sparked renewed debates about the role of corporations, their participation in the political process, and how they should be governed. These questions intensified with increasing calls for companies to give respect to environmental, social, and governance (ESG) issues.

Reinventing and Disrupting Government

Entrepreneurial enthusiasm spread beyond commercial business itself. The era's disenchantment with large institutions spurred some ambitious people toward “social entrepreneurship”: using creative means to attack problems usually addressed by governments or conventional nonprofits.²⁵ Some of these enterprises were launched by pioneers who saw the opportunity to address issues with the same upstart mentality that made private‐sector companies so valuable. Often, the leaders of these enterprises would partner with those who made early fortunes in the business world and sought a similar innovation or disruption in the philanthropic sector. While many of these organizations were focused on developing unserved areas or new technologies, some aimed at vested interests that they believed hindered more than helped in finding solutions.

The result was a flood of experiments and initiatives addressing everything from entrenched poverty in Africa to climate change in the Arctic. Efforts at addressing education through social entrepreneurship, such as Teach for America, mobilized thousands of talented young college graduates to spend several years teaching in schools in lower‐income areas. Started by Wendy Kopp in 1989, the organization had nearly 60,000 alumni and was one of the most sought‐after jobs for graduates of the country's elite colleges and universities by 2020.²⁶ Just as importantly, many new organizations addressing other social problems would be formed in its wake, inspired by the organization's success.

Another daring social entrepreneur was Paul Farmer, who cofounded Partners in Health. Among several innovations, he and colleagues succeeded in treating drug‐resistant tuberculosis in Peru in the 1990s despite the health care establishment – both established nonprofits and government officials – telling them it was impossible. They delved into the economics as well as the medical treatments and found a sustainable solution.²⁷ Farmer, like many entrepreneurs in the social sector, showed that individual initiative, ability, and drive could solve important societal problems in new and creative ways.

Perhaps the biggest area of disruption was in public education itself. As cities wrestled with failed schools, some experimented with outsourcing schooling to third‐party organizations (often reluctantly).The charter school movement started in Minnesota in 1992 and soon spread to most states. Though this effort was largely funded by state and local governments, the movement allowed flexibility, new energy, and performance management. Most importantly, charter schools introduced innovation, competition, and parent choice into the mix. By 2018, thousands of charter schools, mostly nonprofits, were teaching 3.3 million students, or 7% of all public‐school enrollment. Many parents appreciated alternatives to the incumbent government‐run schools and signed on to long waiting lists, even as teachers’ unions fought back and slowed the spread. While some of their educational achievements were disputed, charter schools certainly forced accountability, dialogue, and a focus on results.²⁸

Hybrid forms of social entrepreneurship also emerged. Venture philanthropy and impact investing addressed market failure while still aiming for a return on assets. Some companies even engaged in “social business,” where they devoted a set amount of capital to activities that needed to only break‐even, rather than cover the cost of capital.²⁹ Others promised to dedicate an agreed‐upon percentage of revenue or profit to specific causes, and the “B Corp” was created to explicitly permit entities to serve not just shareholders but multiple stakeholders. In many cases, for‐profit entrepreneurs simply began to recognize that addressing social goals through enterprise could make for a good business.³⁰

Separately, universities, economic development agencies, and government officials also became more involved in trying to create technology or other clusters in their regions. The number of colleges offering programs and classes in entrepreneurship grew dramatically. States and towns worked to lure technology firms into their regions. Many began to see the link between entrepreneurial activity, regional development, and creativity more broadly, and they specifically sought to attract the “creative class.”³¹ Coffee bars and microbreweries seemed to open on every corner.

Silicon Valley Inspirations

Through it all, Silicon Valley became the era's iconic region. To earlier generations, it looked like a conventional industry cluster with numerous large‐ and mid‐scale defense, electronic, and engineering firms in the area. Partnering with the government, they were designing rocketry, silicon chips, and other cutting‐edge technologies aimed at continuing the momentum that IBM had gained with its popular mainframe computers. But “underground,” engineers were experimenting, tinkering with projects assigned by their corporate employers or pursued on their own initiative. By the 1990s and 2000s, the rush toward entrepreneurial success was out in the open, and it continued unabated.³²

Information technology moved from huge, capital‐intensive machines to cheap, portable devices that start‐ups could afford. With ever‐more circuits on a computer chip, mainframes were superseded by minicomputers, then by personal computers, and ultimately by smartphones. The concept of “software as a service” and the growth of cloud computing dramatically reduced the amount of money needed to get a new venture off the ground, facilitating the “lean start‐up” and speed.³³

Established companies began to see the possibilities of new technologies as well as the risks of not keeping up. By the late 1990s, most businesses were becoming digital, and new opportunities often depended on information analytics as much as product breakthroughs. Companies focused on being nimble and agile and on avoiding “technical debt” that could slow down the ability to stay current. This enabled a virtuous cycle of greater interoperability, easier market entry for new technologies, and speedier returns on investment for innovation.

With computer power so cheap and consumers increasingly comfortable in using the technology, companies were finding that they could substitute software for hardware. The all‐electric Tesla luxury car, for example, fixed many of its problems by sending customers a software update, rather than calling in the car for a mechanical repair. As early as 2011, Netscape cofounder Marc Andreesen – by now a venture capitalist – was saying that “software is eating the world.” And the more things ran on software, the less capital you needed to disrupt them. Kids only recently out of school could improve on systems that engineers had spent their careers developing.³⁴

Consumers also became more adept at using technology, especially as new generations grew up with access to computers, tablets, smartphones, and apps. This certainly made it easier for new products, services, and features to gain adoption. But it also helped established companies that were undertaking “digital transformation” themselves, as consumers were increasingly comfortable with online shopping, downloading apps for travel reservations, and using the smartphone to order services. Upstarts, nimble incumbents, and consumers all benefitted.

Steve Jobs as Hippie‐Billionaire

A college dropout, Steve Jobs was hardly the sort of figure to inspire fear among big business incumbents. His favorite course was calligraphy. He hung out with hippies, tripped on LSD, ate a vegan diet, and studied Zen Buddhism. His engineering chops were good enough to get him a job at Atari in 1974, but he quit after a few months to seek enlightenment at an Indian ashram. A year later, he and a friend assembled circuitry to manipulate dial tones so they could access free long‐distance telephone calls. The illegal device's (short‐term) success convinced him that electronics could be profitable as well as fun – and that he could take on large companies and beat them. And so he did – to the point of building the most valuable company ever.

It helped that Jobs lived in Silicon Valley, which in addition to its military‐funded innovation and research universities had been a symbol of the countercultural 1960s. Mainstream America first encountered his company in a 1984 Super Bowl ad introducing the Macintosh computer. Inspired by Orwell's dystopian novel, it depicted a woman smashing a computer monitor showing an overlord's speech to conformist drones. The meaning was clear: Apple and its products would liberate individuals and shatter the dreary incumbency of IBM. At least in those days, as Jobs said, it was “better to be the pirate than the Navy.”

Marketing was only one side of the rebellion. Both geek and hippie, Jobs ignored computer conventions and offered a striking combination of high design and user‐friendly interfaces. He was less able to handle success, and Apple struggled with growth in the late 1980s and early 1990s. The company fired him and then nearly went out of business. When he returned in 1997, he applied his ethos to new products and platform strategies that catapulted the company to astonishing levels of profitability. The hit parade included the iPod and the proprietary iTunes virtual store, as well as sleek new devices like the iPhone and iPad. Apple's stock appreciated 9,000% during Jobs's second tenure, and the company dominated the wireless telephone industry, displacing Motorola and Nokia. It then squeezed incumbents in music, photography, and media.

By the 2010s it had become a dominant incumbent itself, with enough market clout to maintain a closed system of apps for its users.³⁵ When he died in 2011, Jobs's net worth exceeded $10 billion, while the company he started had a market capitalization of $300 billion. By 2021 it was the most valuable company in the world, with a valuation approaching $3 trillion.

The Irony of Big Tech

Since the time of Steve Jobs's passing, the march of upstart technology firms into powerful incumbents only increased. Like successful upstarts in other eras and industries, these tech firms worked to become powerful incumbents themselves, erecting barriers to protect their accumulated customer base and ensure continued demand for their products, services, or intellectual property. Lobbying expenses rose markedly in the technology sector, as big firms pushed back against a range of adversaries that sought protection, from large companies to small. In the case of firms like Apple, with its “1984” commercial, and Google, which started off with the mantra “Don't Be Evil,” the industry dominance and use of information to maintain competitive advantage seemed hypocritical.³⁶

While these firms created enormous value for consumers, third parties that could take advantage of their platforms, and the economy as a whole, the increasing dominance of these firms in economic life was troubling. As these companies collected more and more data about users and suppliers and started to deploy emerging technologies such as artificial intelligence, it seemed that the competitive advantages they were building were becoming insurmountable. Moreover, the firms were increasingly using their position and insights to extract more value from third parties or to offer competing services of their own.³⁷ Finally, the power of many of these companies over information brought concerns that they might even be garnering control over American freedom and democracy itself.³⁸

Staying ahead often required bold and aggressive acquisitions, as these firms learned the lessons of Microsoft. While the entrepreneurs who sold to these firms were happy and it often led to new products and services being deployed more quickly, others took issue. For instance, Facebook acquired more than 60 firms since it began in 2004; it paid $1 billion for Instagram in 2012, only to up the ante by acquiring WhatsApp for close to $20 billion in 2014. The rationale for these enormous prices was to stay in front of consumers, who were adopting these new services daily, and to avoid the risk of being disintermediated by these new firms over time. Critics complained that these acquisitions only furthered the company's lead and squashed nascent competitors.

While the tech platforms gained power, in certain cases content providers or other suppliers could push back. Artists or third parties with strong followings were particularly well suited to rebel, most notably Taylor Swift and gaming company Epic, the maker of the popular Fortnite.³⁹ In response to pressure, Apple eventually agreed to loosen certain restrictions.⁴⁰ Meanwhile newer companies such as Spotify attacked Apple's hegemony in music and TikTok challenged Facebook's in social media.

Arguably the most dominant of the Big Tech firms was Amazon, which not only drove its lead in e‐commerce but also established leadership in cloud computing. In the retail area, the company combined efficient direct sales of items with a “marketplace” model that gave the third parties the ability to sell through its platform. As with other platforms, the company developed an enormous data advantage, which it could use to sell more goods directly as categories became large and popular. The company also developed proprietary warehousing and delivery capabilities, combined with enough user purchaser data to become a one‐stop giant. Here, too, new competitors emerged, in categories ranging from furniture and pets, and in general e‐commerce platforms such as Shopify.

The tidal wave of disruption that began in the 1990s and continued for the next three decades reshaped the economic landscape. It dramatically altered business strategies, structures, paradigms, and outlooks. Upstarts with innovative technologies or approaches were able to enter markets or disrupt them altogether, while incumbents were forced to transform themselves to stay competitive. Large companies that did not move fast enough could not rely on governments to save them, and those that were too slow or made the wrong moves suffered mightily. Consumers saw more choice and investors saw stock prices skyrocket. A consensus of sorts emerged around the virtues of entrepreneurial capitalism.

America's success had not gone unnoticed abroad. Entrepreneurship and venture capital began to expand markedly in other countries, with many reporting record levels of start‐up activity and venture financings in 2021.⁴¹ European policymakers sought to emulate aspects of America's open entrepreneurial capitalism, even as they maintained important aspects of their social contract and took the lead on corporate sustainability mandates in classic top‐down ways. Japan, which had been the global darling at the beginning of the era, suffered from “lost decades” beginning in the 1990s, as an aging population, deflating asset prices, and lack of “creative destruction” took its toll. But many there also began to recognize the importance of entrepreneurship to reinvigorating its economy.⁴² Countries throughout Asia and Latin America saw increasing activity, including record numbers of unicorns.

Meanwhile China emerged as a global powerhouse, on track to become the largest economy in the world. While it dismissed America's liberal political economic model, adopting instead an authoritarian version rooted in socialist ideology, it nevertheless tolerated entrepreneurship within limits. It even tackled inequality and climate change at the same time it limited individual liberties and human rights, including in the entrepreneurial enclave of Hong Kong.

By 2020, several decades of liberal economic policy, coupled with entrepreneurship, social entrepreneurship, consumer choice, and active shareholders, had demonstrated the ongoing power of the American political economy. At the same time important issues remained, with rising urgency. Workers, small businesses, and others left out clamored to get their fair share of the pie amid dramatic inequality, while issues such as diversity and climate change began to receive broad and overdue attention. How the country responded to these challenges would be critical both to continuing the country's long run of economic success, and to serving as a political and economic model for emerging entrepreneurial economies around the world.