The future isn't going to be built by VC-istan, but by a fleet of ~50,000 small-to-medium businesses formerly called "lifestyle" companies,
The problem is that many technology companies have natural economies of scale. It is not realistic to have a world where you have 1,000 mom and pop search engines instead of 1 Google. One search engine becomes a little better, so more people start to use it, it can make more money, invest in more technology, become even better, get even more users, and eventually the top dog becomes a run away success. Since the entire idea of technology is that you research the novel technique once, and then can use the technology over an entire user base at a low marginal cost, there is a natural economy of scale.
There is of course already a very large economy of "lifestyle" businesses. But these businesses are either b) not in the technology business (restaurants, retail, services, etc.) or b) in an extreme niche of technology where there are so few customers the company never grows that big.
I really do not see how you can break a Microsoft or Apple, much less a Google or Facebook, into 50,000 smaller businesses.
Google was still an excellent search engine when it had 1/100 of its current codebase. Fifty programmers could deliver something of nearly comparable quality (excluding in-house knowledge that gives it that extra 0.01%). Google's obviously doing a lot more than Web Search, now.
Web Search is a Big Problem and, as you said, it's a winner-take-all, red-ocean business. Google managed to come in when the state of the art was horrendous (few considered search to be an interesting problem; it was "solved" but shitty). Now Bing is almost as good as Google, and certainly far better than Google was when it established dominance of Search.
You say: I really do not see how you can break a Microsoft or Apple, much less a Google or Facebook, into 50,000 smaller businesses.
You don't. Big companies are not going to die out overnight. They'll still be there, they'll still be strong and important, they'll still provide utility and commodity services, but the Big Companies of the mid-21st century might have 3000 employees instead of 25,000. So where will those other 22,000 go? Smaller companies. They'll be more independent.
There are a lot of problems that can be solved by technology but require some "niche" competence. Take the emerging field of data science. Machine learning is very powerful, but domain knowledge is still key. There are thousands of domains that are going to be needing what's currently a very high level of data competence (not big data, but smart data for sure) in people who also understand their problems. That makes room for thousands of lifestyle businesses.
There are a lot of problems that can be solved by technology but require some "niche" competence. Take the emerging field of data science.
It's possible that market dynamics will change in a way that favors small businesses over large corporations. Is it likely? You have not convinced me.
Google needs thousands employees in order to run the infrastructure that maintains its current scale, and in order to develop the features needed to keep its competitive edge. Fifty employees is not going to cut it.
It is conceivable that it could be run with, say, 5000 employees instead of 50000. It is possible that the additional 45,000 employees are basically unprofitable, executing vanity projects to give shareholders the impression that Google is innovating in new directions. If that is the case, as programmers we should probably be thankful, because that money is going to bid up our salaries, rather than being paid back as dividends to wealthy shareholders.
In other words - even if businesses could be run much more efficiently - the beneficiaries would be the shareholders, not engineers. Only if the shareholders used their extra dividends to buy more software would it balance out to engineers. If Google suddenly became far more efficient, fired 90% of its workforce, and paid dividends to shareholders, that would not magically create a market opportunity for 1,000 new small businesses to pop up. The new jobs would be in whatever the shareholders getting the dividends choose to spend their money on.
The problem is that many technology companies have natural economies of scale. It is not realistic to have a world where you have 1,000 mom and pop search engines instead of 1 Google. One search engine becomes a little better, so more people start to use it, it can make more money, invest in more technology, become even better, get even more users, and eventually the top dog becomes a run away success. Since the entire idea of technology is that you research the novel technique once, and then can use the technology over an entire user base at a low marginal cost, there is a natural economy of scale.
There is of course already a very large economy of "lifestyle" businesses. But these businesses are either b) not in the technology business (restaurants, retail, services, etc.) or b) in an extreme niche of technology where there are so few customers the company never grows that big.
I really do not see how you can break a Microsoft or Apple, much less a Google or Facebook, into 50,000 smaller businesses.