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Digital Disruption: Empires of the Cloud ...
Hi Friend,
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| | 1 Empires of the Cloud ... Empires of the Cloud are dominating internet activity. Software as a Service is yielding to Business as a Platform. We hear much about Uber and Airbnb as the great disruptors. Uber is the largest taxi firm in the world, yet has no vehicles, Airbnb is the largest “room rental" business in the world but owns no hotels. In reality, Uber and Airbnb are minor niche players in the great game.
Five key “Empires of the Cloud” are emerging. Apple, Google, Microsoft and Facebook are joined by Verizon, making a late run. Together our top five “Empires of the Cloud”, have a combined market value of $2.5 trillion dollars.
The battlegrounds have formed on which the empires will joust. The quest for dominance is relevant and real. Google dominates search, Facebook and Google dominate on line advertising. Amazon dominates online commerce. Apple and Google dominate mobile software and apps marketing.
Personal Assistants rival amongst the big four. Apple’s Siri, Google’s Now, Microsoft’s Cortana and Amazon’s Alexa-Echo, each seek to have the last word.
In Social Media, Facebook is the dominate player with 1.7 billion monthly users. It is a huge player, intent on maintaining dominance. The acquisitions of Instagram and WhatsApp, the latter for $16 billion, are evidence of Facebook’s commitment to the cause. Attempts to acquire Snapchat for $3 billion have failed to date. The launch of Instagram “Stories” is clearly targeted at the reluctant seller. Facebook hosts “Messenger”, “YouTube” alongside Instagram and WhatsApp to provide a comprehensive social media offer.
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| Verizon acquires Yahoo … Verizon’s
acquisition of Yahoo brings Yahoo and Tumblr into the Verizon stable to sit
along side AOL. Yahoo’s 700 million MAUs are a big addition to the
empire. Microsoft’s acquisition of LinkedIn for $16 billion brings over
300 million MAUs into the Microsoft camp.
In payment, Apple Pay,
Google Pay and Amazon Pay have strong payment platforms to support the
high level of platform transactions. PayPal is the major independent
with a strong history with eBay. PayPal and eBay are currently valued at
$35 billion. Twitter and Snapchat with market caps of under $20 billion
sit as acquisition fodder before the Empires of the Cloud.
New
Empires of the Cloud are governed by the old rules of competitive
strategy. The race to critical mass is important for market dominance.
For new business platforms, development is a function of runway and burn
rate. Serial losses may be sustained in start up phase, as long as the
model fundamentals are correct. Cost of Acquisition cannot exceed Life
Time Values. Transactions with revenues below cost, may be OK as a short
term loss leader for certain items but not in the overall product mix.
Walmart’s acquisition of Jet is an interesting case in point.
According to the Wall Street Journal, transactions sustained at a loss
were a significant part of the Jet retail model. In
October last year, Jet had a monthly burn rate of $40 million, including a $25 million advertising budget. With $63 million of cash left at the end of October,
the company avoided a cash crunch when it raised $350 million in
November. It is suggested Walmart is paying $3 billion for an unproven
retail model to boost online performance and create a rival platform to
Amazon. Good luck with that!
Empires expand, laterally, horizontally and vertically.
Empires will seek to expand where the perceived value is greatest.
Sometimes, this will involve co-opetition, working with the enemy. Take note, Alibaba (not Baidu) owns search on Alibaba. Facebook (not Google) owns
search on Facebook. Apple, dependent on Google for Maps for the iPhone
decided to drop Google. The decision to develop an Apple “Map App” in
house was strategically important, albeit badly executed at the out set.
Yahoo made a great strategic mistake in surrendering search to Google
as we explain in The Yahoo Case Study.
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| | | Facebook and WhatsApp… The Facebook acquisition
of WhatsApp for £19 billion was as much a defensive acquisition as it
was a strategic play. WhatsApp has more than 400m users around the world
heading for one billion within the next three years, or so it is hoped.
Facebook’s successful close in 2014 followed a Google offer of $1
billion for the company in the previous year. Facebook was prepared to overpay to avoid a rival empire seizing control.
In China, the
empires are well established with Alibaba in commerce, Baidu in search,
WeChat in messaging and Xiaomi in mobile. For the firms of the West
China is a difficult market. Last month Uber made a strategic
withdrawal, swapping China operations for a stake in homegrown rival,
Didi Chuxing, partially owned by Baidu.
Empires of the Cloud
operate within the old rules of the game. We define the battlegrounds
amongst search, advertising, payment and many more. Empires monitor the
battleground using our formula of CBS News. Competitors, Buyers, Suppliers, New Products, New Players, New Platforms and New
technologies. Product life Cycles are significant as always in
monitoring corporate performance. Snapchat will face a greater challenge
from Google’s Instagram. Etsy will face the challenge of Amazon
Homemade.
The development of cloud has seen the emergence of
Apple, Google and Microsoft Cloud Products. Nothing compares to the
dominance of Amazon Web Services in the provision of cloud storage for
many online platforms. AWS provides a great ability, along with Amazon
Platform, to monitor performance of the new arrivals, ready to move when the time is right!
New entrants will come and go but the Empires of the Cloud will be watching every move … |
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