The Biggest Companies Always Win (Until They Don't)
There’s a story about John D. Rockefeller that is often misunderstood.
In 1911, the Supreme Court dissolved the Standard Oil trust into 34 separate companies. Rockefeller, who owned about 25% of the entity, woke up a monopolist and went to bed a shareholder in dozens of “competitors” like Jersey Standard (Exxon) and Socony (Mobil).
Most people assume this was a loss for Rockefeller. The government broke up his empire. Justice was served. The little guy won.
But that’s not what happened.
The Rockefeller Paradox
Within a few years, Rockefeller was significantly wealthier than he was before the breakup. The “sum of the parts” proved more valuable than the whole because the individual companies were forced to modernize and compete in the burgeoning gasoline market.
But there’s a deeper lesson here: Rockefeller still won because he owned the underlying infrastructure and equity. He didn’t just own oil; he owned the distribution networks and the institutional knowledge that determined who captured value when the energy industry transformed from kerosene to internal combustion.
The technology changed. The fuel changed. The applications changed. But the person who controlled distribution kept winning.
Distribution Beats Product
I’ve been thinking about how AI is affecting the business landscape. Specifically, the difference between creating value and capturing value.
Peter Thiel famously noted in Zero to One that “poor distribution—not product—is the number one cause of failure.” This observation has never been more relevant.
The conventional wisdom of 2023 was that AI would be the “great equalizer.” The narrative said a solo founder with an LLM could replace a 50-person engineering team. And in some ways, that’s true. Building has never been easier.
But building isn’t the hard part. Scaling is. And scaling requires distribution.
The Feature Absorption Problem
In the 2010s, we watched “feature absorption” kill startups over and over:
- Snapchat’s “Stories” were absorbed by Instagram
- Houseparty’s group video was absorbed by FaceTime and Zoom
- Foursquare’s check-ins became a button on Facebook
The pattern was always the same. A startup would prove product-market fit. Then a larger company with existing distribution would copy the feature, ship it to their user base, and the startup would slowly fade into irrelevance.
Today, we see the exact same pattern with AI.
The “AI startup” that raised a Seed round to build a “legal document analyzer” or an “automated slide deck generator” has largely been commoditized. Microsoft didn’t need the best AI; they needed Copilot shipped to their 345 million+ paid Microsoft 365 subscribers.
As of early 2026, over 70% of the Fortune 500 has adopted Copilot, effectively “absorbing” the functionality of thousands of specialized startups. The startups had better products. Microsoft had better distribution. Distribution won.
The Economics of Coordination
Ronald Coase won a Nobel Prize for explaining why firms exist: Transaction Costs. It is often cheaper to coordinate activity under one roof than to negotiate contracts on the open market.
This insight has an uncomfortable implication for the “AI democratizes everything” thesis.
AI has made coordination 10x cheaper. But according to Coase’s logic, when coordination costs drop, the “optimal size” of a firm can actually increase. If it becomes easier to manage 100,000 employees, the best-managed companies will simply expand their reach.
This is why, despite the “lean startup” hype, the “Magnificent Seven” and the Fortune 50 continue to dominate the global economy. AI didn’t shrink them. It made them more efficient at being large.
Where the Fortune is Made
History provides a roadmap for the “AI era”:
The Railroads: The companies building the tracks mostly went bankrupt. The fortunes were made by those who used tracks to move atoms—Rockefeller’s oil, Carnegie’s steel. The infrastructure providers captured almost none of the value they enabled.
The Internet: The ISPs and browser companies (Netscape) were pioneers, but the value was captured by the aggregators—Amazon, Google. The companies that owned the customer relationship won.
AI: The massive value may not stay with the model providers (OpenAI, Anthropic) as inference costs continue to plummet toward commodity pricing. Instead, it will be captured by the “Applied AI” giants—the companies that already have the customers, the data, and the distribution.
The pattern is consistent across centuries. Build the infrastructure, and someone else captures the value. Own the customer relationship, and you capture the value regardless of what infrastructure you’re using.
Practical Takeaways
If the thesis holds—that AI benefits incumbents with distribution—the most “boring” companies become the most interesting investments.
Healthcare: Giants with proprietary patient data and regulatory moats. No AI startup can recreate decades of medical records and established physician relationships.
Banking: Institutions with massive deposit bases and compliance “gravity.” The regulatory burden that makes banking tedious is also a moat that AI cannot circumvent.
Logistics: Companies with physical “store footprints” and loyalty data. Amazon’s advantage isn’t its recommendation algorithm—it’s the warehouse 10 miles from your house.
The burden of proof has shifted to the disruptors.
When a startup claims they will beat an incumbent, the question isn’t “Is your AI better?” Everyone has access to world-class models. The question is: “What do you have that they can’t simply add to a dropdown menu next Tuesday?”
If the answer is “nothing but the AI,” that’s not a company. It’s a feature waiting to be absorbed.
Rockefeller understood that railroads were a tool, not the goal. The winners of the AI era are the companies treating AI the same way—as a means to scale an advantage they already possessed.