Return of the tech Wars

There was a time, not long ago, when you could sum up each company quite neatly: Apple made consumer electronics, Google ran a search engine, Amazon was a web store, and Facebook was a social network. How quaint that assessment seems today. The Great Tech War Of 2012, Farhad Manjoo in Fast Company Magazine

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Amazon, Apple Facebook and Google: these four companies, dubbed “the gang of four” by Eric Schmidt, the executive chairman of Google, will be fighting it out for control of what has been called the post-PC era – a brave new world characterised by the emergence of smartphones, tablets, and other small, mobile, easy-to-use computers. There is potentially a lot of money to be made as these devices encourage and facilitate consumption, in just about every form

We need to put the power of the four into some kind of context. I was looking at the Fortune 500 and Apple was the first of the four to appear in the list, but at a modest 35. Even that old dinosaur IBM comes in at 18. Few of us could name the CEOs of the companies at the top of the list: Michael T. Duke (Wal-Mart), Rex W. Tillerson (Exxon Mobil), and Brian T. Moynihan (Bank of America Corp.) are hardly household names. However, something about Mark Zuckerberg, Jeff Bezos, Larry Page, and the late Steve Jobs has captured the public’s imagination.

Now we are told that these four companies will be at war with each other. Some of us are old enough to remember another tech war – the struggle between Sinclair and Acorn in the early eighties. Little did we know in those heady days how irrelevant that fight would be. Then in the eighties IBM Microsoft and Apple slugged it out with Microsoft emerging as the undisputed victor. During the late 1990s we had the browser wars as Microsoft’s Internet Explorer took over from Netscape’s Navigator as the web’s dominant browser. These battles have continued as Explorer has to deal with a series of aggressive usurpers such as Google Chrome, Mozilla Firefox and Apple’s Safari. And Apple has turned the tables on         Microsoft with the iMac, the iPod, the iPhone and the iPad.

So the tech wars between these four Titans are nothing new. This is a battle of products, but is also a battle of business models. Each company has its own way of making money. As the quote at the beginning of the article states, the four tended to specialise. But now they’re branching out into all kinds of new areas. This is going to bring them into conflict with each other, and a by-product of their rivalries will be to cause disruption in many sectors of the economy. As a consumer it will be fascinating to see how this all plays out.

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What I am going to do is look at the situation of the four companies:

Google

Google’s core business model is to provide search and advertising services. The genius of Google is their extraordinary ability to organise the information on the Internet. Their physical network has always been extremely fast and they offer consumers incredible value without charging a penny. The advertisers are their source of revenue. And the company has an unparalleled facility for monetising Internet traffic through a highly efficient targeted advertising model. They control a whopping 46% of digital advertising. Every decision Google takes has to be understood in terms of advertising; they are constantly on the lookout for new applications that can drive traffic through their search engine. Most of what Google offers is free. Among other things they have Gmail, Maps, YouTube, a bookstore, Google+ (a social networking site), a new music service and Android, a highly successful mobile phone operating system. Android gives us a clear insight into Google’s modus operandi. They don’t actually earn any money giving away their smartphone operating system to different phone manufacturers. Instead they make money by showing you ads every time you search on Google or look at your email on your Android phone. The more people use Android phones, the more advertising revenue they generate. They are now going head-to-head with Apple on smartphones and tablets.

But they do have other interests. They want to get into the cloud and they are working on a driverless car. In August this year one of these autonomous vehicles was involved in a collision – the project’s first crash.

Amazon

Amazon’s propensity for losing money in their early years led to them being called amazon.org. They wanted to build up the business and the profits would eventually come. Amazon nearly doubled in size from 2008 to 2010, when it reached $34 billion in annual revenue. Analysts expect it to reach $100 billion in annual revenue by 2015, faster than any company ever. I remember hearing about the Kindle when it first came out. It sounded exciting, but I had no idea it would be so successful. Now Amazon has a new product, the Kindle Fire, which is not just a reader, but a tablet. It is clearly a potential rival for the iPad. The Kindle Fire is smaller than the iPad and has different specifications but there is a huge price difference. Compared to the cheapest iPad which costs $500, the Fire is a bargain at $200. The device, which is clearly linked to Amazon’s Web store, allows you to get books, movies and TV programmes downloaded directly on to your machine. So Amazon’s rationale is not about making money from sales of the device. They appear to be selling it for no profit at all. But they want you to use this device to buy a lot of stuff from their store.

In a ranking produced by Forbes Amazon was ranked as more innovative than both Google and Apple. They are particularly well positioned in cloud computing, which is surely one of the key areas in the future.

Facebook

Facebook’s aspiration is to be an alternative way to organize the Web, a platform for consumers to spend their time online. What drives Zuckerberg’s strategy is the fact that Google’s search engine cannot reach Facebook content. Thus the more time people spend on Facebook, the less time they will be exposed to ads on Google. Until now people have found content by searching. Facebook is out to overturn that model. They want friends to direct other friends to content. Google has recently created a rival social network, Google Plus, but it is so far behind Facebook they need Google Maps to find it.  Facebook is not interested in supplying media products, like Apple or Amazon.com. However, It is teaming up with companies that distribute music, films, information and games. An example of this is their deal with Spotify. They have features that allow you to see what your friends are doing online: Bill Pringle is listening to Mantovani or Norman Fletcher has installed Facebook on his HTC Wildfire. Facebook has been called a directory of human desire and is able to collect valuable data about its users’ habits and desires, which can then be used to sell highly targeted advertising.

Apple

I have already done a post about Apple: I’ll buy almost anything if it’s shiny and made by Apple. In terms of the tech wars the struggle is between Apple and the aforementioned Android operating system. Although the iPhone has lost market it is still hugely profitable given Apple’s huge profit margins. Some estimates say that Apple has half of all the profits made in smartphones. They know how to exploit the global production cycle and the enormous economies of scale. Despite this rosy picture Apple are out to get Google and their Android operating system. For Jobs it’s something very personal:

Our lawsuit is saying, “Google, you fucking ripped off the iPhone, wholesale ripped us off.” Grand theft. I will spend my last dying breath if I need to, and I will spend every penny of Apple’s $40 billion in the bank, to right this wrong. I’m going to destroy Android, because it’s a stolen product. I’m willing to go to thermonuclear war on this. They are scared to death, because they know they are guilty. Outside of Search, Google’s products—Android, Google Docs—are shit.

How will they cope with the loss of Steve Jobs? Tim Cook the new CEO appears to be an excellent organiser, but he doesn’t have the artistry or the monstrous ego of Jobs. He has already been at the helm for long periods during Jobs’s sick leave and the company has been thriving. The long run could prove more complicated. One key relationship will be between Cook and Jonathan Ive, the Senior Vice President of Industrial Design at Apple. Ive was the man behind iMac, iPod, iPhone, and iPad. One area where they would like to put their distinctive stamp on is the TV. An Apple TV could prove a reality soon. However, given past history, will it be possible to watch porn on it?

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The legal issues have got a bit ugly in the last few years. Everyone seems to be suing everyone else over patents. I understand the need to protect intellectual property rights, but I wouldn’t want to see further innovation stifled. And now in an ironic twist of events the government, egged on by the likes of Microsoft, is considering an antitrust suit against Google. I tend to be sceptical of this kind of lawsuit. I agree with economist Don Boudreaux who argues that the motivation behind many of these cases comes from industry players, who use antitrust to throttle more successful competitors and get relief from the rigours of competition.  Many observers have an incredible lack of imagination. They see a market outcome they regard as negative and they project it into eternity. I don’t know about you, but the anti-trust case against Microsoft seems pretty irrelevant given what has happened in the last decade or so.

Who is going to win? I have no idea. There probably won’t just be one winner- I also think other companies have a role to play and I certainly wouldn’t write off Microsoft. We are going to see another bout of creative destruction as these products and models fight it out. As we have seen these companies employ very different models. People do tend to get quite sectarian about these questions. Apple in particular seems to inspire extreme reactions. I have a piece of advice: if you don’t like a device, don’t buy it.

The best tech companies have tended to stay at their peak for a decade at most. Amazon, Apple, Facebook, and Google will be trying to buck this trend. But right now there is probably some Californian geek plotting the downfall of the big four. The sad thing is that if and when rivals emerge it probably won’t be in Europe. Apple, Amazon and Google were al started in garages. It may be an apocryphal story, but apparently it’s illegal to run a business from a garage in Germany.  Still, have no fear in Britain we have Silicon Roundabout. I’m sure the Yanks are quaking in their boots!

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