You know we’re big on the potential of platforms here at the Forum, so it’s interesting to look at how the big five tech cos make their money and just how risky their business models are or could become.
As the graphic below shows, from an article in Business Insider, it varies. A lot. The one that fascinates me the most at first glance is Microsoft. It’s the most diverse, which to my thinking is a good idea (I’m averse to having all the eggs in one basket). In the interests of keeping this to a manageable length, I’m going to focus on Microsoft and the two companies at the other, non-diversified extreme, Facebook and Alphabet.
Although Microsoft has never had a near-death experience like Apple did (back in 1997), it has had some serious missteps and yet survived huge market changes magnificently. The most obvious is, as co-founder and former CEO Bill Gates admitted, almost missing the internet revolution. If my memory serves me, its focus was on unified communications (bringing the phone and PC together) until its attention was caught by the browser company Netscape passing it at supersonic speed.
If you want to know about several other big opps Microsoft failed to capitalize on (mobile among them), Charles Arthur’s book, Digital Wars, is a good read. The most amazing thing is that a company that size has been able to reinvent itself, and that its platform-based cloud business, Azure, is a big, big part of that success.
It’s a source of great pride that some of the development work for Azure was done, collaboratively, here within the Forum – read this case study to find out more. You can also read Eric Troup’s take on the importance of security to platform-based businesses here – he is Chief Technology Officer for Worldwide Communications and Media Industries, Microsoft, and a fundamental part of that development work.
What’s plan B?
Next, let’s have a look at Alphabet, which is almost all Google and ad revenue; the rest is, as the Alphabet graphic says, ‘other bets’. Google Glass didn’t work out and neither did the building fiber infrastructure experiment in Kansas – turns out it was too expensive and not high enough returns to be worth the bother…. There are connected cars and Project Loon (clusters of balloons to bring connectivity to remote places) and who knows what else, but for now it looks like a one-trick pony – but not quite as much as Facebook.
This is scary when there are plenty of people out there predicting the death of digital advertising – or at least its steady decline. Why? It annoys the heck out of users – we hate being interrupted mid-taks by something we didn’t want or ask to see. Writing for Forbes recently, James McQuivey of Forrester reckons, “interruption only works if consumers spend time doing interruptible things on interruption-friendly devices”.
Check out the infographic below.
Interesting, eh? My only question is what happens when Alexa or any other voice interface tries selling you something unsolicited? Well I suppose you can tell it to shut up?
There is also the regulatory thing. Google has just been fined over $2 billion by the European Commission for abusing its search engine dominance by giving illegal advantage to its own comparison shopping service. The Commission decided the fact items were marked as sponsored wasn’t good enough – they hogged most of the screen while competitors’ offers were buried on page four of the search results.
While $2 billion is a serious amount of money, it’s not going to bankrupt Alphabet, but it does mean that Google will have to change its practices and has opened the door for rivals to sue for damages and equal treatment. Plus as the Financial Times says, “The size of the commission’s fine indicates the amount of ill-gotten gains Google has reaped from its market abuse. But it is dwarfed by the gains extracted from other services that have not yet been looked at but now surely will [be]” [subscription needed to view article]. Clearly Google’s argument that platform market dynamics mean a new company could emerge and knock it of its perch at any time did not impress the Commission.
According to a book just published, The Chickenxxxx Club (my xxxs to spare any blushes), the US Department of Justice has little appetite for reviving its glory days of the 1980s when it successfully prosecuted thousands of execs for doing naughty things such as abusing a dominant position in tandem with the businesses they worked for. Still, if there is anything recent events have taught us it’s that things can change radically – and fast.
Get your hands off my data
And if advertising and regulation don’t damage those who are so very dependent on ad revenue, how about most of us just demanding we own and have control of our own data, and stop other people making money out of it?
Certainly, Telefónica thinks that this is the right thing to do and that ultimately, being seen as trustworthy and transparent will trump (sorry) profiteering by making the T&Cs too extensive and too difficult to understand. And if you don’t agree, you can’t use the services (although only providing those two options is illegal in some countries anyhow). Telefónica is allowing customers to leave just by sending a text instead of doing what most telcos do – force customers to phone a call center where the agent does everything they can to put you off becoming an ex-customer. Whether making it easier to leave will encourage customers to stay remains to be seen, but at the very least, it’s putting the customer first.