We’ve talked in previous posts about Facebook’s recent attempts to reorient its business model; it’s now become obvious that that is the need for all of big tech including Apple, Alphabet, and Amazon.
And the WSJ declares that “those efforts are now becoming urgent.” Facebook’s Zuckerberg talked up plans to combat the public anger over abuses on the social network, by touting a vision more focused on private messaging and small groups than on the advertising-driven social-media hub, on which Facebook currently relies for a majority of its income. Apple is planning new approaches, as well, in response to the declining iPhone market and is currently attempting to turn itself into a services company fueled by app and entertainment sales as much as by the sale of hardware. Google’s parent, Alphabet, has been the most energized big-idea factory, having worked on self-driving cars for a decade as well as in areas ranging from balloon-tethered internet access to extending human life. To date, the company has had little success with these various efforts turning into money-making businesses. Advertising is still 85% of the revenue stream for Alphabet and operating losses at its other attempts grew to 52% ($868 million) in the last quarter. Recently, there was a reported drop in advertising revenue at Google, surprising everyone and underscoring the need for the company to come up with alternative revenue models. There are a number of forces behind the concern for the current state of the big tech business models – privacy abuses and misinformation is one which threatens the continued use of ad-driven strategies at Facebook and Google – a practice that has relied on “harvesting people’s information and maximizing the time they spend glued to the internet” (ref WSJ). And the smartphone which has driven much of the tech industry’s boom is maturing with all that that entails – incremental innovation and flagging sales. Thus, there is a compelling need for big tech executives to seek out new places to disrupt, “less they themselves be disrupted” (ref WSJ). An analyst has said that the companies have to keep the growth but are constrained because of regulatory concerns from risking the bet on growing the markets they already dominate. “The current regulatory climate is such that all of them are saying ‘We can’t acquire growth into our core business because [the FTC] will block it'”. There’s serious concern about the nature that the new growth must take, but, to date, there isn’t exactly panic – Google and Facebook are still garnering most of the new online-ad dollars and are also optimistic about the new ways of doing business that they’re pursuing. As they stretch into the new markets, however, the big tech companies will, increasingly, bump up against one another. Amazon’s advertising effort in affecting the revenue of Google and Facebook; both of which are going up against Amazon in e-commerce. As well, Facebook’s messaging shift threatens Apple, whose Messages app is important to its services push. Also, Amazon and Google’s inroads into hardware also affect Apple. And Apple’s Hollywood campaign impacts on Amazon which spends billions of dollars annually on the production of entertainment. It’s said the the reordering of the business models for the tech giants could, in turn, reorder the tech giants’ dominance. The analyst making this statement has said that much will depend on the new voice assistants that are expected to replace the smartphone – and this, in turn, will determine which established companies as well as which new players thrive. “Some will make the transition; some will see their power eroding,” he says. Sounds like many believe that there’s a new day dawning in big tech.