Google, Amazon, Facebook and Apple – giants roaming the tech land face (he didn’t mention Microsoft, which is sometimes also bundled with these four).
Google – controls 90% of the search market
Amazon – Largest online retailer 43% of online retail (I’m guessing in the US); second biggest company after it is 4%
Facebook – 1.9 Billion users
Apple – 91% profit share of the smartphone market (despite having far less than 50% of the market share); most valuable company in the world
Despite being such giants, there is nothing inevitable about their continued existence, necessarily. Myspace was once thought to be an unassailable social media platform.
Apple has a loyalty following which should help it survive even if it falls on to hard times (as has happened in the past)
Google and Facebook are more precarious, even though they are, in essence, a digital duopoly. Both rely very heavily on advertising. Google has 86% of its revenue coming from advertising, while facebook has 97% of its revenue from ads.
Google:
Other players are beginning to get into Google and Facebook’s game: in search, Amazon is becoming a major search competitor to Google– a lot of the retail related search is going to them; and with Amazon Echo, they will be moving into other search as well. By 2020 it is projected that 50% of search willo be voice or visual, where it is not clear how you add advertisements. When web is no longer an entry point, Google loses its gateway.
Google’s next major income generator is video, where it is increasingly competing with Facebook (in feed), twitch (specialty gamer domain), and OTT content providers.
Facebook:
Facebook is getting ad fatigue – more users are ignoring them, and Facebook needs to take stronger measures to push them at its users (for example auto-play ads, which users dislike). Also, there is greater pressure from advertisers to open up Facebook’s metrics, so there can be more transparency around what value they are getting from it.
There are also a lot of privacy concerns which may cause backlash. For example, when Facebook acquired whatsapp, they said it was technically impossible for them to link account data from the two services, but then went ahead and did it anyway, causing the European Commission to investigate them. In fact there are many investigations underway against both Facebook and Google in the EU both around privacy as well as antitrust concerns.
How are these companies diversifying away from their core revenue sources?
Purchasing: Google, Facebook, Amazon and Apple have spent $130 billion dollars in purchasing other companies – many of them for innovation (patents).
Content: All four are investing heavily in content and content services (you tube red, Amazon prime video and music, Apple music and iTunes store, Facebook Content Strategy)
Subscription services – Amazon prime (which is now in 50% of US households, 70% of US households with annual income of $112K and up!), you tube red and Apple music are all content subscription (some more successful than others)
But is the investment paying off? Not clear. Alphabet has invested $46 billion in various projects, which so far have lost them $6 billion. There are a lot of “moonshot” projects, so some may return the investment in the long run, but so far they have not found a replacement for search as a monetization platform.
Facebook, on the other hand, is trying to copy other models: Facebook markets is their version of Craig’s list; Facebook jobs is their version of Linked-in; Facebook workplace is their version of Slack; and with Instagram they are clearly just copying whatever Snapchat is doing. In addition, they are investing heavily in VR, but again, this is a domain which has not yet paid off.
Apple’s diversification strategy is less clear. In contrast to Facebook, Apple seems to be focusing on AR, not VR – rumors it will be available as soon as the iPhone 8. Their attempt to branch off into wearables with the Apple watch is not generating excitement, and Apple music has slow adoption and is far behind the other music streaming services. It’s rumored to be working a TV service (it may just buy a major US TV provider, it has enough money), and for some time it was rumored to be working on a car. None of these are near time projects. However Apple has a unique brand loyalty which should sustain it even if drops from dominance (as has happened in the past).
Amazon stands out from the others in terms of diversification: It has been able to generate $10 Billion in revenue in 2016 from Amazon Web Services, and it is rolling out more services. It is still very strong in retail – provides more choice at cheaper products. It has its own consumer product lines (AmazonBasics branded goods, and it’s rumored to be launching a brand of female undergarment fashion) and are using their massive data collection to undercut the market. They have huge success with the Amazon Dash buttons and are constantly innovating in retail: new Amazon go store, Amazon flying warehouse patent, Drone delivery and so on.
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| Amazon’s flying warehouse: a warehouse floating in the air from which drones fly down to the city to deliver packages. |
Given all of these trends, the lecturer predicts Amazon will become the biggest company in the world and has the best chance of the four to survive for the long run.
2017-04-09 Update:
Just the last couple of weeks, Google has been feeling the pinch of some advertisers pulling their ads from Youtube because the ads were shown near what's called "inappropriate" material. This is proving to be quite the challenge for Google. This of course won't topple them, but it's not a good sign, clearly.
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