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Something to ponder during your food coma… the “Great Tech Wars of 2012”

November 24, 2011

I’ve been thinking frequently about this article that ran about a month ago in Fast Company, describing how Apple, Facebook, Google, and Amazon (the ‘Fab Four) are in the midst of a fantastic battle for the future of the innovation economy and what it means to New

Market Entrepreneurs (NMEs) like us.

To state this as clearly as possible: The four American companies that have come to define 21st-century information technology and entertainment are on the verge of war. Over the next two years, Amazon, Apple, Facebook, and Google will increasingly collide in the markets for mobile phones and tablets, mobile apps, social networking, and more. This competition will be intense. Each of the four has shown competitive excellence, strategic genius, and superb execution that have left the rest of the world in the dust.

While NME’s must be relentlessly focused each day on the most important tasks associated with advancing the opportunity, it’s always a good idea to be acutely aware of environmental surroundings- continuously searching for and assessing market developments that might accelerate or impede the advance.   This is why NME’s cannot ignore the activities of the Fab Four.   At least for me, there’s barely a day that goes by without an announcement from one of the Fab Four that does not cause me to stop to think about the consequential opportunities or impediments it may have on my NME projects.

Consider these broad-based exerpts from the Fast Company article and what they mean for your New Market efforts, especially if they involve the mobile and/or information-economy opportunities:

  • It would be a mistake to see their ambitions as simply a grab for territory (and money). These four companies firmly believe that they possess the ability to enhance rather than merely replace our current products and services. They want to apply server power and software code to make every transaction more efficient for you and more profitable for them.
  • The torrent of news and rumor surrounding these companies and their initiatives is already overwhelming, and it’s only going to grow stronger. But viewing their moves through the lens of hardware, media, and data is the first step toward understanding their strategies.
  • Android could command even 70% of the smartphone business without having a meaningful impact on Apple’s finances. Why? Because Apple makes a profit on iOS devices, while Google and many Android handset makers do not. This is part of a major strategic difference between Apple and the other members of the Fab Four. Apple doesn’t need a dominant market share to win. Everyone else does. The more people who use Google search or Facebook, the more revenue those companies can generate from ads. Amazon, too, depends on scale; retail is a low-margin business dependent on volume.  Apple, on the other hand, makes a significant profit on every device it sells. Some analysts estimate that it books $368 on each iPhone. You may pay $199 for the phone, but that’s after a subsidy that the wireless carriers pay Apple. Google, in contrast, makes less than $10 annually per device for the ads it places on Android phones and tablets. That’s because it gives away the OS to phone makers as part of its quest for market share. Google’s revenue per phone won’t go up after the Motorola purchase closes–Motorola Mobility’s consumer-device division has lost money the past few quarters. So despite Google’s market-share lead, Apple is making all the money. By some estimates, it’s now sucking up half of all the profits in smartphones.
  • Silicon Valley is home to an awful lot of talk about moats these days. Warren Buffett deserves credit for the metaphor, which describes the companies he’s most interested in pursuing–ones with huge revenues (a castle of money) whose businesses are protected by unbeatable competitive advantages (or very wide moats). The Fab Four all have moats to rival those at Angkor Wat.  As a result of these wide moats, these companies generate so much money that they can spend freely on new ventures; and in some cases, they’re willing to do so even if the business won’t ever bring the kinds of gains they’re used to.
  • Each of the Fab Four believes that it can somehow define the future of television, when that flat panel in your living room (and every other device you own) is connected to the web, pulling in the video you want at the moment you want it. With the universe of choice now available, the moribund channel grid will need to be revolutionized with a fresh interface for finding programs. Social signals–such as indications of what shows your friends are watching and hints as to what shows you might like given those friendships–will be part of the mix, as will live conversations with friends watching the same show. And the advertising will be more targeted and relevant. Each of the Fab Four wants a piece of this. The honey pot? Not only that $70 billion in domestic ad revenue but also $74 billion in cable-subscriber fees.
  • Over the next two years, Bezos, Page, and Zuckerberg will gingerly start to vie for Jobs’s innovator-in-chief mantle. (One way to consider this battle among the Fab Four is as a fight for this honor.) Of them, Bezos has the best record with new products. Amazon Web Services and the Kindle were true innovations that changed and inspired the rest of the industry. (According to some reports, even Apple relies in part on Amazon’s cloud infrastructure for its iCloud service.) Bezos also seems the most temperamentally attuned to the creation of Next Big Things. “A big piece of the story we tell ourselves about who we are is that we are willing to invent,” he told investors at Amazon’s annual meeting this summer. “We are willing to think long-term. We start with the customer and work backward. And, very importantly, we are willing to be misunderstood for long periods of time.”
  • Zuckerberg’s app strategy is also ambitious and intriguing. At f8, he debuted a new class of Facebook media apps that let Facebook users read, watch, and listen to content without ever leaving the site–and share it seamlessly. He’s lured impressive media partners such asThe Wall Street Journal, Spotify, and Netflix. If Zuckerberg can bring those apps to the social network’s mobile product, he’ll have a winner on his hands: an app ecosystem that works on every phone and tablet, rather than on just one company’s devices, and one that captures the next generation of mobile developers (not to mention all those Facebook credits). Watch out, Apple: Zuck is coming for you.
  • In a larger sense, all these companies have devalued the idea of talking on the phone; paying for minutes is passé when you can text, IM, and video chat instead. Now we all just pay for data, delivered via high-speed networks that might be built around and between what the carriers offer. (Of course, the Fab Four seems to assume retailers and municipalities will build those networks to enable their vision–anyone but them.) Verizon is a $100 billion company built on dumb pipes, and dumb pipes may not make for a smart business model for the long run.
  • The other outfit standing between you and the Fab Four is one that barely registers: your credit-card company. When you buy something through iTunes, the Android Market, Amazon, or Facebook, the credit-card company gets a small cut of your payment. To these giants, the cut represents a terrible inefficiency–why surrender all that cash to an interloper? And not just any interloper, but an inefficient, unfriendly one that rarely innovates for its consumers. These credit-card giants seem ripe for the picking.
While some might argue that Microsoft is back in the game with Kinect, for now, monitoring the Fab Four’s prolific innovation is a big enough homework assignment for NME’s looking to get an edge or preserve their jump.
Good luck and Happy Thanksgiving!
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