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.