The Internet in 2025: which tech giants will dominate? (Pew 2)

pew-survey-company-question-2

Screen grab from Pew/Elon survey questionnaire, January 2014

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The Pew survey included a question about tech firms that was set up a little differently than the others. As the screen grab above shows, participants were asked to rank the long-term success, or lack of success, among the Big 5 as listed, as well as among other firms of our choosing.

Although it’s about 10 years too early to say “I told you so,” the news over the last few days provides some support for conclusions drawn in my response. As you can see, I’m calling for Amazon and Apple to become “More important”… Facebook and Microsoft to become “Less important”… and Google to “remain the same.”

grip-iphone-3b

Apple: too big to be successful any more?

A recent financial piece in the New York Times (Trying to See Apple From a Different Angle) says the stock market “doesn’t know quite what to make of Apple.” Two general reasons are adduced. One is cyclical: the company has had problems with sales of its cash cow, the iPhone. The other is structural: Apple has the largest market cap of any multinational, as well as the highest brand rating on the global Interbrand survey (all that engineering brainpower finally knocked a syrupy, dark-brown soft drink off its throne). Oh, and the $159 billion in cash it has lying around. Apple’s now so big and so successful that it’s scaring off growth investors who want to see a hit product every six months.

On the other hand, at least some of the smart money has apparently managed to reframe Apple’s value in a way more suited to its current role in the tech economy. Remember a few years ago when Jobs quietly changed the company name from Apple Computer, Inc, to plain Apple, Inc? That was of course an acknowledgement that Apple had way outgrown its nerdy origins to become a broadly-based consumer electronics firm. That shift is echoed in what one forward-thinking analyst said to the reporter for this NYT piece:

The market is beginning to value Apple as a consumer goods company today. It’s being valued like General Mills — a great company with great cash flow.

OMG, General Mills. Well, whatever works to keep the market cap up there.

Microsoft: revenge of the nerds?

Meanwhile, over in Redmond, Apple’s traditional arch-enemy is galloping in the opposite direction. The elevation of engineer/computer scientist Satya Nadella to the CEO position at Microsoft – to be “advised” in some fashion by Gates – is being hailed in some quarters as a return to the company’s roots, as though that were a good thing. In other quarters, reporters are seeing this turning point at Microsoft as one step on the road to irrelevance – or at least a road fraught with market uncertainties and mortal competitive threats.

In a short piece published yesterday in the NY Times Bits section, Nick Bilton took the mickey by pointing out that the communications strategy for Nadella’s appointment was for every senior guy to flog innovation till blue in the face. In barely 400 words, Bilton repeats “innovative” and “innovation” 21 times. As he writes:

You might remember a now-famous scene with Steven A. Ballmer, then the chief executive of Microsoft, walking on stage at a conference in 2006, sweat staining his armpits and chest while he passionately bellowed, “Developers! Developers! Developers! Developers! Developers!” It looks as if the new Microsoft […] has an updated mantra: “Innovation. Innovation. Innovation. Innovation. Innovation.”

Well, it’s a nice idea. Except somebody should tell these geniuses that if they ever want to catch up to Apple in even one product category by innovating, they have to stop letting the coders call the shots and find some serious marketing talent. Jobs may have had his name on over 300 technical patents. But I think most agree his genius lay in what we would call marketing: figuring out what consumers want before the consumers do. I’ve taken some potshots at MS in my survey response below, especially on the issue of failed innovation. And now I simply can’t resist embedding here for your viewing pleasure the long rap version of Ballmer’s developers dance (a great 3-minute time-waster)…

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The targeted-ad industrial complex

A couple more thoughts before the survey answers. One is that I’ve leaned on what appears to be a useful distinction based on revenue models: separating companies that have actual products to sell, like Apple, and those that don’t, but instead realize their revenue from online advertising. IMHO, the business of targeted advertising is unsustainable for both earning money and building customer loyalty. I think it’s ultimately doomed, though I recognize there’s some wishful thinking in that idea. At the very least, some present-day giants – especially Facebook – are bound to collapse under the weight of their increasingly brazen and intrusive targeting practices.

The other thing is simply that I’ve discussed only one other company below and that’s my perennial favorite, Netflix. See what you think of my five arguments for why Netflix will thrive through the next decade, while beating back many of their most ardent legacy competitors.

The survey question…

Technology industry success – In 2025, which of the current colossus companies now wielding influence over how we use the Internet will be more important and powerful and which will be less important and less powerful (or even disappear)?

See table at the top.

Please elaborate on your answers above. Describe the most powerful Internet-leveraging and Internet-influencing corporations of 2025: Which will they be? What will they do? What kind of impact will they have on human connection, commerce, politics/civic life, education, and health care?

My answer…

Let’s tackle this backwards. Among the 5 current Internet giants, the 2 that will become least important are Microsoft and Facebook. As a legacy of its monopoly power, Microsoft has consistently failed to innovate, from 3rd-party acquisitions that bombed, like WebTV, to laughable knockoffs like Zune. The company’s inability to build for the future has come home to roost where it hurts: the decline of the PC and desktop computing in favor of phones, tablets and other portable devices, and most recently, in favor of Android over Windows. Because Microsoft built its empire on software, it may find a reprieve in the growth of SDx, software-defined everything: networking, data centers, storage, etc. But the one-time giant now faces a very different landscape: an array of nimble competitors, and a trend away from vendor lock-in toward more open source (or maybe just more platform fragmentation).

Odds of losing its dominant position over the decade: very high.

Facebook is more puzzling. It spends a lot of time trying to make amends for pissing off regulators and customers for its intrusive and deceptive business practices. Since Facebook makes its money creating targets for advertisers by mining customer data, the company’s alienation from those who use it can only get worse. Moreover, just as its revenue model means pushing further into data-mining, so too its service model means giving users more of everything – a strategy that has made the News Feed an information firehose. Beyond customer alienation and content fatigue, Facebook is up against the long-term threat of an emerging platform that takes away business insidiously – another Instagram it can’t or won’t co-opt through acquisition.

Odds of losing its dominant position over the decade: medium-high.

The problems created by Facebook in realizing the dream of hyper-targeted advertising are shared by other players. Online advertising isn’t going away; in fact, the latest IAB data show dollar volume at an all-time high. Nevertheless, interactive media lend themselves to transactions while transactional media make for better businesses than those supported by advertising. Amazon and Apple are on the “more important” list because they have goods a lot of people want to buy, and because both companies have shown they can innovate better across many product lines better than anybody else in tech retail. The future of e-books and iPhones means more fun and functionality at (relatively) better prices. The future of online ads means more invasion of privacy.

Targeted ads give the impression of a free lunch; indeed, the more targeted, the more grateful we’re supposed to be. But the legacy of the NSA revelations is more people (who can afford to) will worry about protecting their online privacy, in part at the expense of the advertisers. “Afford” is the key word. Ad-supported online media will have more success with lower-income segments than the higher-income segments who can buy or rent their media and consumer durables. The one development that could save the targeted-ad industrial complex by 2025 is the Jaron Lanier model: paying customers for their data, instead of stealing it surreptitiously and pretending to offer “free” goods and services in return.

Odds of Apple and Amazon growing their dominant position over the decade: high.

netflix-logoAs for online companies on the way up to take over from the old guard, Netflix makes a good example. Netflix has at least five attributes that will sustain its growth. One, it has not simply threatened TV’s status quo; it has disrupted the way millions of people watch TV (binge viewing). Two, Hastings has proven himself capable of coming back from big mistakes (splitting the business), and not merely winning the marketing war, but pushing his stock back up to impossible heights. Three, Netflix is the dominant player by far in a global market that will only grow as more content becomes available (albeit at considerable cost to the bottom line), and as screens multiply (what other service is available on over 400 devices). Four, Netflix understands the service business and enjoys intense customer loyalty, while the TV and cable guys have never figured out what an online relationship looks like – to say nothing of the extent to which cable is pricing itself out of its own market. Five, Hastings and Patty McCord created an unusual corporate culture widely admired for retaining talent and transforming HR. Netflix has years of battles ahead with the studios to restore the “movie buff” status of its libraries. Nevertheless, it knows how to build a sustainable business not only in the marketplace but inside the company.

Odds of Netflix growing its dominant position over the decade (especially against legacy service providers): high.

D.E.