A COUPLE OF years ago Snap, the company behind Snapchat, a social-media app, came close to imitating the feature for which it was then famous: digital photos that self-destruct ten seconds after the recipient views them. Shortly after a headline-grabbing initial public offering in 2017, the firm faced a user revolt triggered by an unpopular redesign, falling rates after it started automatically auctioning ad space and an exodus of executives. Its shares dropped precipitously in value, at one point in late 2018 sinking below $5, less than a fifth of the price they fetched when the firm started trading.

Snap has since staged one of the most incredible turnarounds in tech history. When it reported results for the first quarter in April, it pleasantly surprised analysts again, just as it has for the past few quarters. Revenue was up by 66% from a year earlier, at $770m. The number of daily users reached 280m, an addition of more than 50m over the same period. As a result, the firm’s share price has surged by 213% over the past 12 months, to $53. “The pandemic exposed the resilience of the changes we have made,” says Evan Spiegel, Snap’s boss.

The comeback is impressive. It also reveals a broader trend: while the Western world’s largest tech companies have had a blowout first quarter, those firms that fall in the category below—call them “tier-two tech”—are growing rapidly, too. And it is not just the additional digital demand generated by the pandemic that is making all boats rise, or the fact that it is easier for smaller firms to grow. Some of these companies appear to be pulling off what sceptics have long considered impossible: thriving in the shadow of the industry’s titans.

By any reasonable definition, the universe of sizeable listed tech companies is big. In America it includes hundreds of firms. We have defined “tier-two” firms as those with a market value of no less than $20bn that were incorporated in 2000 or later. That leaves 42 firms worth a combined $2.4trn. They range from e-commerce sites and streaming services to travel firms and vendors of corporate applications.

Even before the pandemic this group had added some weight relative to the “GAFAM”, as some now call America’s five tech behemoths (Google and its parent company Alphabet, Apple, Facebook, Amazon and Microsoft). In February 2020 its joint market capitalisation amounted to 22% of the GAFAM’s, up from 14% three years earlier (see chart). But it was during the pandemic that tier-two tech really added heft: at its peak the share reached 35% (although it has fallen to 29%, as investors have become warier of newish tech stocks). This pattern in America of a weightier second tier of tech has parallels in China, where a new generation of contenders, including Meituan and Pinduoduo, has come of age to take on the original duopoly of Alibaba and Tencent.

One reason for the increase in relative size in America is technological progress, especially the rise of cloud computing. This has allowed firms to specialise and created big markets even for seemingly obscure offerings, which can now be tailored for very particular purposes and offered globally. A good example is Twilio, which is largely unknown to consumers, but is used by most. It provides services for text, voice and video communication to more than 200,000 other firms, from Airbnb, a home-sharing site, to Zendesk, a helpdesk service. After a few years of fast growth, its annual revenue is approaching $2bn and its market capitalisation exceeds $50bn. “If you are a developer, you don’t have to spend a year to understand all the details. You can just plug into our systems,” explains Jeff Lawson, Twilio’s chief executive, “that’s the idea of infrastructure-as-a-service.”

The pandemic has given the second tier a further boost. “Covid has been the great digital accelerator,” says Mr Lawson. Demand for his firm’s services, for instance enabling salespeople to communicate electronically with customers, shot up when physical retailers had to move online. Many other second-tier tech firms benefited, too. Zoom, a now near-ubiquitous videoconferencing service, saw its revenue surge to $882m in the latest quarter, nearly five times more than a year earlier. Shopify, an e-commerce platform, was the runner-up: its quarterly revenues more than doubled. Most others grew at least by double digits. They include Snap, but also Pinterest, another social-media firm (78%), and PayPal, a provider of online payments (29%).

The techlash has helped, too. Under scrutiny from critics and regulators, the GAFAM mostly shied away from big takeovers (with the notable exception of Microsoft, which recently bought Nuance, which makes speech-recognition and other software, for $16bn and was rumoured to be in talks with Pinterest). This in turn has pushed more tier-two tech companies to go public. Of the 42, no fewer than 13 did so in 2019 and 2020, adding about $600bn to the group’s current collective market capitalisation.

The most notable cause for the success of tier-two tech is that these firms are now much better at creating a protected space for themselves to grow within, says Mark Mahaney of Evercore ISI, an investment bank. They not only offer compelling products but have built, in geek speak, “platforms” complete with an “ecosystem” of users and corporate partners on top.

These digital edifices are best compared to a marketplace, in which the operator provides basic services that enable buyers and merchants to do business. The setup has the advantage that it often exhibits strong “network effects”: more buyers attract more merchants which attract more buyers and so on. It also makes it harder for one of the GAFAM to replicate rivals’ offerings, as Microsoft has done with Slack, Apple with Spotify and Facebook with Snapchat.

Snap is a good example of this shift from product to platform. It was easy for Facebook to copy Snapchat’s hallmark feature, called “Stories”, collections of pictures and videos captured within the past 24 hours. This is why the firm has recast “Stories” as a platform on which hand-curated partners, such as big media companies, can offer original content. Snapchat’s four other main offerings are conceived as platforms, too. For instance, on “Map” users can locate their friends and local hotspots, and on “Camera” tens of thousands of developers offer augmented-reality (AR) lenses—digital filters that users can apply when using their camera. “The investments we made back in 2017 are now paying off,” says Mr Spiegel.

Many others in the second tier fall into this category. “Shopify does not compete with Amazon. We are not a retailer. We are a piece of software that powers other brands,” explains Harley Finkelstein, the company’s president. In other words, instead of selling stuff for other firms, the site provides them with tools to set up their own virtual stores, from web hosting to payment, and allows third-party companies to offer additional services, including design and delivery. In the case of PayPal—and similarly Square and Stripe, two other payment providers—the more users these services attract, the more they pull in merchants, which attracts more users. As for Twilio, its corporate customers and developers of more specialised communication applications, such as call-centre software and group texting, boost each other.

Unsurprisingly, others are trying to spin up their own “flywheels”, as platforms are also called. Spotify and Twitter want to fulfil this function for “creators”, essentially anyone producing digital works. The first now sees itself as a home for all sorts of audio content, from songs to podcasts. The other mainly aims to distribute all types of written content, including tweets and newsletters. Zoom, for its part, in October introduced “Zapps” (later wisely renamed “Zoom Apps”), which much like the lenses on Snapchat and the applications on Twilio, is supposed to form a moat which keeps rivals at bay and creates additional demand.

Not all this platform building will succeed. The bigger question is whether any of these companies will catch up with the GAFAM anytime soon. If tech history is any guide, they could. In China Meituan and Pinduoduo, two ecommerce platforms, have overtaken Baidu to become the third- and fourth-largest internet firms in China. Only a few years ago Adobe and Salesforce, two providers of corporate applications (which are both too old to be included in our definition of tier-two tech), were still much smaller than Oracle and SAP, leaders in business software, let alone Microsoft. Adobe and Salesforce still have lower revenues, but are growing faster and are now in the same league in terms of market capitalisation. They are currently worth $233bn and $201bn, respectively, whereas the valuations of Oracle and SAP stand at $227bn and $170bn.

“S” is the most likely letter to be added to the GAFAM acronym. In its new incarnation, Snap may yet become a serious rival to Facebook. Snapchat is now arguably the closest the West has to a “super-app” (the model is WeChat, the flagship service of Tencent). If it keeps buying biggish companies, meanwhile, Salesforce could one day pull even with Microsoft. And if it continues on its current trajectory long enough, more wares may one day be sold on Shopify’s platform than on Amazon’s.

Much has to go right for this to happen. One risk is that the tech sell-off of the past few weeks makes it harder for loss-making firms to raise capital, or maintain the enthusiasm of shareholders for heavy losses in the pursuit of growth: over three-fifths of the second tier are loss-making. The titans will have to become less innovative, the reason Oracle and SAP have seen their leads eroded. Many of the second-tier tech firms will have to be willing to merge. And trustbusters will have to tackle the dominance of the GAFAM. “Unless the regulatory environment really changes, this is going to be the status quo for the foreseeable future,” argues Dan Ives of Wedbush Securities, an investment firm.

Instead of waiting for a second-tier firm to catch up, it might be better to settle for a more realistic perspective on the future landscape of tech. It will probably look like a biological ecosystem in which species of all sizes find their niche. Dinosaurs do sometimes die out, but only rarely and mostly through outside intervention.