Tech competitors – The principles of the tech sport are altering | Leaders

February 27, 2021

T.The idea that the tech industry is dominated by monopolies is so widespread that it has monopolized a lot of thinking, from investor strategies to antitrust enforcement legal intelligence. However, as we explain, it becomes more difficult to maintain this (see article). After a long period of ossification, the industry is entering a dynamic phase. In America, the digital markets are shifting towards oligopolies, where the second and third companies compete fiercely against the incumbents. The big tech companies are vying for customers and data: Experience the confrontation between Apple and Facebook over who controls the privacy of iPhone users. And across Asia, digital conglomerates are fighting against it. The emerging structure of the industry is far from the open, diffuse capitalism that this newspaper supports. But a rival oligopoly is much better than a monopoly.

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The storm of creative destruction was blowing hard in Silicon Valley. The list of companies overthrown from dominance ranges from Fairchild Semiconductor to Hewlett-Packard. But lately the giants have held on: Apple and Microsoft are over 40 years old and Alphabet and Amazon over 20 years old; even Facebook is 17 years old this month. What happened? Network and economies of scale mean that size creates size, while data can act as a barrier to entry. Search, social media, advertising, e-commerce, streaming, hail, delivery, and payments all share these alchemical properties to some extent. Many technology companies, especially the big ones, have shown little appetite over the past decade to compete directly with one another. The three most common searches on Microsoft Bing are Facebook, YouTube, and Google. Does Anyone Remember Amazon’s Fire Phone?

At first glance, nothing has changed. Tech companies had a lucrative 2020 and investors are betting that more is to come. The market value of the five American giants of $ 7.6 trillion implies that their sales will double in the next decade. However, if you take a closer look, a shift is underway. Incumbents are not getting any smaller – their weighted average market share is stable, around 35% in each of America’s eleven tech subsectors. However, the share of the second and third companies has increased from 18% to 26% since 2015. This reflects two deeper trends.

First, as their core products mature, new technological opportunities emerge, and regulatory threats increase in America, Europe, and China. The companies have talked about it for years, but now it is happening. The proportion of the revenue of the five American giants that overlap with the others has increased from 22% to 38% since 2015. Microsoft and Alphabet are taking over Amazon in the cloud. Amazon, in turn, is the growing force in digital advertising.

The second trend, which accounts for a third of the market share shift, is that outsiders have momentum. 98-year-old Disney gained 116 million new streaming customers in 18 months, while 58-year-old Walmart posted $ 38 billion in online sales last year. Independent tech firms like Shopify in e-commerce and PayPal have broken through thanks to the digital boom caused by the pandemic and are making enough profits to feed themselves.

You might think this competition is just a slip up, but it has a precedent in Asia, where customers have made a leap forward and the lines between products are blurred, resulting in market share shifts, lower margins and innovation. China has Alibaba and Tencent and five other competitors worth $ 100 billion or more. India has Jio and Southeast Asia has Grab, Gojek and Sea. All of these firms think of subscribers who could be persuaded to buy a fluid range of services instead of protecting a static monopoly at all costs. You strive to expand through diversification, even if it means going up against rivals.

One danger is that this oligopolistic rivalry is a Potemkin competition. The Apple alphabet duopoly over telephone operating systems or app stores has not yet been disrupted. Although advertisers have more choices, for example between Amazon and Facebook, those advertised still have no real alternative to the products of Mark Zuckerberg, the boss of Facebook. And there are too many cozy connections between companies. Alphabet is paying Apple up to $ 12 billion a year to make Google the iPhone’s default search engine. Alibaba and Tencent are involved in some of China’s new additions.

This is where resurgent antitrust authorities can make a difference. These Google payments are now subject to a Justice Department lawsuit while Apple and Google are facing complaints about their app stores. Europe is planning rules to bring the products of different companies together and help users move their data. China has a new list of the “Nine Not” for e-commerce companies, including the fact that no new competitors are excluded.

It helps that ambition is plentiful. By attracting businesses to its cloud platform, Alphabet is losing $ 6 billion a year – more than Amazon has lost in its lifetime. Disney plans to have 325 million subscribers by 2024. PayPal aims to have 750 million users of its financial super app by 2025. Walmart just bought an advertising company. Facebook is getting into e-commerce. Microsoft has been considering buying two social media companies, TikTok and Pinterest. Huawei in China is busy developing an alternative to the duopoly of the iOS-Android operating system.

Oligopolistic competition could benefit consumers in a number of ways. This could improve choice as more companies compete for a growing range of services: 11 American companies have over 100 million digital subscribers. It could raise standards as platforms differentiate themselves through trust. For this reason, Apple iPhone users will soon be asking if they want to turn off Facebook’s data tracking to revitalize the advertising market (see article). This could lead to innovation as companies look for new tools like virtual reality to control access to customers.

In 2000, few predicted that technology was meant for monopoly, and then it became accepted wisdom. Nobody knows today whether the emerging pattern of oligopolistic rivalry will continue or benefit consumers. But the conditions are more promising than they have been for years. The regulators try to price open markets. A financial boom means capital is abundant and a global surge in online activity has fueled demand. A more controversial digital economy would be a consequence – for markets, consumers and companies alike. It looks more likely.

This article appeared in the Leaders section of the print edition under the heading “The Dust-up”.

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