Change is the only constant, or so they say. Not in the technology world over the last few years it seems – especially in terms of who controls technology development and digital advertising supply.
Advertising and tech have consolidated into what’s known as the Big 5 companies – Facebook, Apple, Microsoft, Google and Amazon (FAMGA) – which have built a seemingly impenetrable fortresses that no new market player will ever be able to breach.
When they see a potential challenge from a competitor, they buy them up (e.g. Google buying Waze); where they see an opportunity for expansion they buy that company (e.g. Amazon buying Wholefoods); and if they can’t buy a competitor out, they mimic them (e.g. Facebook recreating Snapchat on Instagram after their $1 billion offer was rejected).
However market dominance can only last so long before it dwindles. Blockbuster, Nokia, CDs, Kodak and IBM are all cases of seemingly impenetrable fortresses that have faced decline over time. This article seeks to look at the factors that could reduce the dominance of the Big 5 US digital giants and allow more competitors to enter this space.
A better platform
In the late 1990s Yahoo was the undisputed leader in search. It was the second-most-visited site online behind AOL (most people used AOL for email in the USA at the time).
Yahoo was the first website to index the internet and could therefore provide industry-leading search results. For advertising they had figured out an auction where any company willing to pay the most money could feature at the top of the search results page. This was great for advertisers, who could pay to get their products in front of internet browsers.
Then along came Google. They honed in on relevance and won the battle for user experience. Google’s ad rank algorithm was vastly superior to any of their competitors’. They took into account user search queries and matched this to ads, creating a better experience for users while helping advertisers reach more valuable audiences.
Who says a new challenger can’t do what Google did and come out of the blue with a better customer experience on their platform, or by giving advertisers access to more valuable audiences?
A better device
Apple first released the iPhone in 2007. Along with it came Apple’s walled garden of apps and content, which has helped the company grow while protecting it from competitors. As people have become glued to the Apple ecosystem, the company has sold in increasingly more services (think the App Store, Apply Pay, Apple Care, etc.).
The services division is now the second highest revenue generator for Apple behind iPhone sales – it makes more than the Mac computer division in sales. For Apple, being first to market and the major innovator in smartphone technology was what put them in this dominant position.
Now think for a moment if a new technology came out that rendered smartphones obsolete. It could be something wearable; glasses and watches have been popular in the past, but why not a shirt, necklace, neck implant or something else?
The next device could also be something off the body; Google Home and Amazon Echo are trying to surround people with a personal assistant, but every day we’re nearing the point where every item we own has access to the internet. How might this affect Facebook when 95% of Facebook users access their platform via smartphones? Would they stay relevant with a major device step change?
With a step change in devices could see a completely new player in the tech world, as long as they can repel FAMGA and their cashed-up acquisition strategies.
Betrayal of customers’ trust is a major risk for tech companies. Public backlash is hard to avoid when much of the ad revenue these companies receive is tied to exploiting customer data and selling this on to third parties. Without properly safeguarding their image and procedures, FAMGA could implode overnight if a major breach of consumer trust occurred.
Another Cambridge Analytica situation could well happen in the future. Facebook and Google have put in big measures in recent months to try to make sure businesses and customers are safe when using their products and won’t have their personal data compromised.
Time will tell if they can continue to avoid a PR disaster, and if their upgraded systems have gone far enough to strengthen their fortress walls.
Governments enforcing higher levels of competition within their jurisdictions and clamping down on monopolistic behaviour could be a threat to big tech companies’ ability to grow revenue or maintain market share.
Google has a 90% share of search in Australia and Facebook dominates social media with 15 million active users. This high market share has also been their downfall; governments have begun to take action to reduce their power and monopolistic grasp, like in the EU where Google was fined $2.7 billion due to its perceived favouring of certain advertisers’ products within its Google Shopping ad section.
The more world governments know about tech companies’ methods for keeping customers on their platforms and squashing competitors’ means of challenging them, the more they may act out against the likes of Google and Facebook and erode their market share.
It doesn’t seem like any of the FAMGA giants are going to be closing their doors anytime soon. They’ve become some of the world’s biggest companies by market capitalisation, and continue to grow.
The likelihood of another major player entering this elite group is unlikely in the short term, mainly because FAMGA are cash-rich and can buy any new shiny competitors with attractive consumer offerings. From a digital marketing perspective however it would be beneficial for advertisers to have access to a more diverse range of platforms to sell in more interesting and novel ways.
Who knows, perhaps if a new tech player emerges that can sell products and services better than FAMGA while repelling their competitive advances, they might have a shot at challenging the status quo.