the authors simply subtracted the companies' tangible assets from their market caps; these are both readily available numbers straight from the companies' quarterly reports.
In the thirty years since 1975, those intangible assets have gone from around 17% of market cap to over 80% of market cap. What does this mean? Well, let's make up an example. Suppose that in 1975, the market cap of an S&P 500 component company was $1B. If it was an average company, about $830m of that value would be in the form of tangible assets: cash, buildings, equipment, etc. But the same company in 2015, with the same $1B market cap, would have only about $160m in tangible assets. What's the rest of the value? It's those intangible things, mainly an expectation of growth because of the intellectual property value held by the company.
This reflects the enormous shift in American (and worldwide) industry in the information age. Much of the value of a company is now in the designs that it has made, code that it has written, patents that it owns, and expertise that it possesses – intangible assets that are the drivers for future growth. Some of the value is simply in market expectations – Amazon and Apple are two good examples of this phenomenon.
The more I think about the changes documented in this graph, the more it sinks in just how profoundly our world has been changed by IT...