Rising Internet usage has a negative impact on mainstream Retail and Media (newspapers and television) but also spawned an array of online services.
Platforms of big technology companies enjoy three key advantages:
- Massive reach through a global membership base. The network effect means that networks become increasingly more valuable as they grow bigger.
- Huge troves of personal data enable them to customize offers to suit individual consumers.
- Artificial intelligence allows them to automate and adapt to changing patterns of behavior.
This gives big tech the ability to disrupt other industries, including health care and financial services. Their scale gives them inordinate power.
One of the key advantages of these large platforms is the ability to operate in a “walled garden” — a closed ecosystem which excludes competitors.
Apple Inc. (AAPL) is an obvious example as it controls all applications on its iOS ecosystem and is able to insert itself — and profit from — many parts of the value chain: advertising, payments, data, video, music, etc. (Medium.com)
Alphabet (GOOGL), Facebook (FB) and Amazon (AMZN) are less obvious but operate similar, closed ecosystems. If you advertise or sell goods or services on one of these platforms, they acquire and own the data about user behavior which they can then use to sell targeted ads to your competitors or, in the case of Amazon, competing products.
Alphabet Inc (GOOGL) dominates the search sector through ownership of Google and Youtube, with revenue growing from $37 billion in FY2011 to $220 billion for the 12 months ended June 2021.
Tech giant Amazon (AMZN) dominates the fast-growing online retail sector, with revenue growing from $48 billion in FY2011 to $443 billion for the 12 months ended June 2021.
Facebook (FB) manages to make extraordinarily high profits — $29 billion on only $85 billion in revenue in 2020 — an indication of their monopoly power.
This leaves them vulnerable to moves to break up the company, with the Federal Trade Commission (FTC), under newly appointed commissioner Lina Khan, litigating for antitrust behavior. (Wired.com)
Netflix is the world’s largest digital television network serving approximately 207 million paid streaming memberships in over 190 countries. Its revenue breakdown is approximately 50% from USA & Canada and 50% from the rest of the world. (SA)
Netflix has enjoyed a long-term compound growth rate above 20% and seems capable of fending off challenges from rival channels such as Disney+.
IaaS is an offering of cloud computing where the provider supplies you on-demand access to computing resources such as networking, storage, and servers. Within the providers’ infrastructure, you run your own platforms and applications. (Kinsta)
The IaaS market grew 40.7% in 2020 to total $64.3 billion according to Gartner. Amazon leads, with 40.8% market share, followed by Microsoft with 19.7% but Microsoft’s Azure is gaining ground, growing 59.2% in 2020 compared to 28.7% for Amazon. Alibaba, Google and Huawei also show strong growth — 52.8%, 66.1% and 202.8% respectively — but off smaller shares of 9.5%, 6.1% and 4.2% respectively. (Gartner)
SaaS is where the provider gives you access to their cloud-based software. Instead of installing the software application on your local device, you access the provider’s application using the web or an API. (Kinsta)
Demand for SaaS can be attributed to its flexible costs and easy maintenance & deployment. (Grandview)
The largest companies in SaaS are Microsoft, Salesforce, Oracle, SAP, and Google. (Statista)
PaaS is where the provider gives you access to a cloud environment in which to develop, manage, and host applications. You will have access to a range of tools through the platform to support testing and development. (Kinsta)
Computer games were a major growth market but China’s recent crackdown on online video gaming is a significant setback. Everyone in the country under the age of 18 — more than 268 million people, according to Chinese census data — is now restricted to just three hours of play per week.
PayPal is a global leader in online payments, and its digital wallet has strong brand recognition, but it faces stiff competition from tech behemoths Apple, Google and Amazon in the longer term.
PayPal (PYPL) and Square (SQ) built their businesses supporting small merchants in the online and digital environments that larger payment processors saw as high risk. They charged higher fees to compensate. They are now seeking to expand their services to larger merchants, offering omnichannel solutions, across physical point of sale (POS), online, in-app and mobile payments.
Growth in online services have also generated new problems:
- Large advertisers have expressed concern over the lack of editorial control over content on sites like YouTube and Facebook.
- Growing misinformation has contributed to increased political polarization.
- Increased hacking and internet-based crime.
- Cyber-war between states.
- Expansion of troll factories, twitter-bots, fake news and misinformation.
In turn, these negatives are spawning new growth industries:
- Internet security
- Fraud detection for online payment services
- Surveillance, image recognition and traffic monitoring