March 5, 2021

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All The Technology

How Tech’s Trillion-Dollar War For Talent Will Forever Redefine Business Strategy

CEO of ECA: CEO and CFO executive search and consulting for private equity. Author of Evidence-Based Recruiting (McGraw Hill, 2020).

What is humanity’s greatest invention of all time? Google the question, and you will find fire and electricity listed as the top search results. Alphabet CEO Sundar Pichai seems to disagree. He is anticipating that when all is said and done, these inventions will pale in comparison to the AI that is about to come.

Pichai is not alone in holding this view. Many of the world’s top tech companies are of a similar opinion. The promise of AI’s power has resulted in a frenzied war for talent. Tech firms are paying AI researchers $400,000-plus salaries (registration required) to lure them out of academia. These same firms are paying close to $2 million to pull top AI researchers from other firms. According to one leading expert, just four companies — Google, Facebook, Microsoft and Amazon — already employ 70% of top-tier AI specialists in the U.S., and their recruitment efforts show no sign of slackening.

These deep investments in AI talent have paid off with extraordinary dividends. Consider Microsoft. In 2014, Satya Nadella took over as CEO and began investing heavily in AI. Microsoft’s valuation tripled to $1 trillion by 2019 and is now around $1.8 trillion. In other words, Nadella’s bet on AI has created twice (!) as much value for Microsoft’s shareholders in five years than the company did in the preceding 40 years.

Other major tech players echo this narrative with striking consistency. Google was valued at $300 billion in 2015. Then Sundar Pichai took the helm pushing for an AI-first strategy. Within five years, the value of Google (now Alphabet) rocketed to more than $1 trillion. Amazon rose from a $150 billion valuation in 2015 to $1 trillion in early 2020 after incorporating AI. Tech companies that made early and strong investments in AI have, by this point, overrun the companies (and countries) that did not.

And what these companies can’t build, they buy. The courtship rituals of tech giants trying to acquire AI startups are reminiscent of the NFL draft. The CEOs of leading tech firms are rumored to personally meet with cutting-edge AI startups multiple times per year to ensure that they can acquire the brilliant minds behind these firms.

There were 635 AI acquisitions from 2010 to 2019, with Google alone spending more than $3 billion to acquire 30 AI startups. And the M&A activity in the space is not showing any signs of slowing down. Last year, Apple acquired Xnor.ai, a barely 3-year-old company, for about $200 million. For some of these deals, the acquisition target’s IP, such as patents, might have influenced the decision, but in most cases, these deals are about acquiring talent.

This war for talent represents something more fundamental than a shortage of qualified tech workers. Rather, it represents a significant shift in how companies think about defending their business models.

For decades, traditional business books have emphasized the importance of building barriers to entry to secure a company’s competitive position and maximize shareholder value. These barriers have often been defensive measures, such as acquiring patent rights that would by law prevent other companies from offering the same solution. So, why are leading tech firms spending more of their attention and resources on recruiting talent that can often walk out the door instead of following the classic business strategy of focusing their efforts on erecting high barriers or entry? Is this classic strategy not the best method anymore for keeping out the competition?

Judging from tech’s focus on recruiting top-notch AI talent, the answer is clear: Developing and executing an effective business model with high barriers to entry is important for building a successful company, but it’s no guarantee for holding a competitive edge in the future. Regardless of how original, innovative and well funded your idea is, your business model is highly vulnerable to lightning-fast obviation by any given upstart.

And so, the key to maintaining a sustainable advantage in today’s economy is talent. 

This brings my thoughts to Agesilaus the Great, king of the legendary warrior city-state Sparta. When visitors would ask him why Sparta lacked protective city walls — highly unusual for any city at the time — Agesilaus would point to his armored citizens and say, “These are the Spartans’ walls.”

Agesilaus’ message was clear: If anyone were foolish enough to attack Sparta, he had no intention to seek shelter behind any barriers or walls. He’d welcome the fight. Agesilaus knew that it was not the height of his city walls that were scaring invaders away but the quality and might of his warriors.

Companies facing the challenges of a rapidly changing business environment can learn from Agesilaus as well as tech’s trillion-dollar war for talent. Business leaders can play defense and spend their resources building barriers to entry, or they can go on the offensive and let the quality of their talent be the reason their competition thinks twice about encroaching on their territory. The choice seems clear.


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