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What is behind this phenomenon? Will the current market leaders (GAFA – Google, Apple, Facebook and Amazon – and Microsoft) be displaced or overshadowed by others? Where will the dynamics change? Nine mutually reinforcing factors determine the market dominance of these firms. The first four factors are relatively obvious; others may be less so, being more based on human behavior than on economics and technology.
Traditional Scale Economies, Scope and Learning
At least part of the dominance of the tech giants market can be attributed to traditional economic factors. Digital products and services have high fixed costs and low marginal costs, as well as economies of scope and learning. For example, AI and cloud-based resources can support a wide range of diverse activities and improve as they are used
2 . Direct network effects (on the market)
The value of a communication network increases disproportionately as it grows, allowing each user to connect to other people. . This effect is formally known as the "direct network externality" ("externality" because it involves third parties in addition to the individual customer and business). There can also be positive and negative "behavioral" direct network effects if the adoption of a product by other consumers makes it more or less acceptable, fashionable or attractive. For example, these behavioral effects are important for adolescents' choice of social media.
3. Indirect network effects (cross-market) – or "platform economy"
Most technology firms are, at least to some extent, "platform" companies: they create value as developers and users of software (Microsoft MS-DOS and Apple's App Store), suppliers and customers (Amazon), drivers and potential pbadengers (Uber) or advertisers and consumers (Google and Facebook). These network effects are "indirect" because – unlike the direct single market externalities above – the value to the participants in each market (eg customers) depends on the number of participants in the other market (eg restaurants) and vice versa. Once a platform dominates the relevant markets, these network effects become self-sustaining as users on either side help generate users from each other. The general term for platform markets is "multi-faced" because some platforms facilitate the interaction between more than two types of users. For example, Facebook connects six: friends as message senders, friends as message receivers, advertisers, application developers and companies both senders and recipients of messages.
The companies of the new platform face the challenge of two or all key markets simultaneously. That's why the failure rate is high, and tech start-ups such as Twitter, LinkedIn, Uber, Pinterest, and Snapchat may need to be supported for many years in deficit – or even never achieve profitability as a standalone business.
Big Data and Machine Learning
Digital companies collect data relentlessly, inexpensively and efficiently. To exploit them, they use badytical tools, more and more automated ("machine learning"), mainly to promote the continuous improvement of products and services, pricing, customization and advertising targeting. They often add free or subsidized services to generate more data, producing a recursive relationship between adoption and usage, product and service quality, and adoption and adoption. subsequent use. Amazon, for example, is constantly evaluating and refining its services and communications, doubling its operations and strengthening its dominant position. The combination of big data and machine learning amplifies network effects and returns to scale, further reinforcing the dominance of technology market leaders and deterring others from entering it.
Strong User Brands and Usual Usage
In November 2017, WPP ranked Google, Apple, Amazon, Microsoft and Facebook – in that order – as the world's five most important brands, for a total of one trillion dollars, or nearly 30% of their combined market capitalization of $ 3.6 trillion. Other brand badessment companies recognize that these are among the most valuable global brands (although numbers vary). Digital products are "experiential goods": users have to try them and learn about them (from their own experience of using others) to judge their quality. Known and reliable brands are essential in online markets to encourage testing and discourage switching to a competitor. The use becomes habitual, even addictive, which reinforces the dominant position of the holders
. Change Costs and Lockdown
Technology companies are deploying a range of strategies to lock users into making it difficult or expensive to switch to a competitor. Incompatibility between providers ("cloisonné gardens" – for example, where iOS applications do not run on Android) and the resulting non-portable data loss, and time invested in learning a particular system ("Consumer human capital") all discourage user mobility. Customizing the service and accumulating content, such as playlists that can not be migrated, further increases the cost of change.
7. Attractiveness for talent
The above-mentioned brand ratings concern the consumer brand – brand badociations in consumers' long-term memory that make them more likely to buy or to use the brand in the future. The technology giants also have significant brand equity the equivalent in the talent market. This allows them to attract the best technical, managerial and commercial staff, thus reinforcing their dominant position in the product market.
8. Powerful Founders and a Dynamic Enterprise Culture
All technology giants have, or have had, experienced, strong and capable founders, such as Jeff Bezos, Steve Jobs and Mark Zuckerberg. The resulting corporate culture is embodied by the old Facebook motto, "Move fast and break things". At Amazon, Bezos always insists that every day is treated as the "first day of the Internet." This obsessive, relentlessly active and innovative corporate culture is an important force, further reinforcing the continuing dominance of the tech giants. Some will say that it also drives their hyper-aggressive tax policies, adding to their competitive advantage.
9. Geography – or "economic clusters"
Despite the claims of some Brexit enthusiasts, geography still counts, especially for innovation. Google (Alphabet), Apple and Facebook are all located in Silicon Valley, as are Oracle, Intel and Cisco. Amazon and Microsoft are headquartered in Seattle, two hours north. These eight companies represent more than half of the 14 technology companies of the 100 largest global public companies in terms of market capitalization. Outside China (whose large technology companies are still largely focused on their highly protected domestic market), no other country has more than one. In addition, 16 of the top 50 technology unicorns – companies founded after 2000 with a valuation of more than $ 1 billion – are also based in Silicon Valley. If any of them starts to be a threat, the holder will know it soon and will acquire it or attack its business model with new service features. The early warning system of the operator will be particularly acute as it provides the start-up with cloud-based services or other services.
Winners take everything – and keep it
Will "creative destruction" – capitalism's innovation ability, destroy and reinvent itself – eventually take care of the dominance of the tech giants market? This seems unlikely because the combination of win-win factors is so powerful. For example, a challenger at Google in the search should offer a significantly better incentive or experience to attract users, over a long enough period to break their googling habit. It would take years and cost tens of billions, with little chance of success. Microsoft's cumulative losses in research were estimated at $ 11 billion in 2013.
It is therefore difficult to see the tech titans lose control of their major markets anytime soon. The partial exception is Apple. Still the most profitable company in the world, Apple is facing challenges as it is increasingly forced to include Google services in its ecosystem and its price compared to high-end Android devices is eroded. Other technology giants also face some competition at the margins of their major markets. For Google, the main direct threat is the growth of Amazon's search business, as consumers looking for a product go more and more directly to Amazon, possibly using its Echo smart speaker ( and his microphone!) And his voice badistant. Similarly, in social media, users can "multi-home" – engage with more than one platform – allowing competitors to coexist with Facebook. Nevertheless, following the model described above, it seems unlikely that Google, Amazon, Facebook or Microsoft will lose their dominance of the global market in the foreseeable future.
Eclipse by a competitor with a dominant share of a potentially larger new market always a possibility, however. To counter this threat, large technology companies are investing heavily in emerging products and technologies, whether through their own R & D, acquiring promising or threatening start-ups, or replicating those that can not be bought. . Self-driving technology is a good example, with companies like Tesla, Google and Apple scrambling to conquer the leading position in a new high-stakes market.
Is there a problem? search service, while search advertisers have a very effective tool that did not exist 20 years ago, for which they pay a competitive market price, based on auctions. This creates a new situation for the regulators: an extreme concentration of the market which nevertheless offers the customers a very good quality-price ratio.
Answers to date differ between Europe and the United States. European antitrust legislation aims to ensure fair competition (reflected by the fine of 2.42 billion euros recently imposed by the Commission on Google to "systematically" prioritize its own purchasing service compared to competitors), while US legislation focuses more closely on. Because the dominant technology platforms are all based in the United States, it is likely to be a growing transatlantic conflict in the future.
We benefit every day from the services of the tech giants, but as Julian Birkinshaw and Ben Laurance argue. In the previous edition, we need new and improved antitrust regulations to solve the problems arising from their enormous market power. For starters, competition authorities need to look closely at the likely effects of their acquisitions. The power of big technology also comes with other major drawbacks: false news and filter bubbles, fraud, cyberbullying, interference in elections, tax evasion and reinforcement of inequalities, to name just a few. some. In short, the challenge of dominating the self-reinforcing market of technology companies is only growing.
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