Google, Apple, Facebook and Amazon are at each other’s throats in all sorts of ways – Published on The Economist, December 1, 2012.
IT IS an epic story of warring factions in a strange and changing landscape, a tale of incursions and sieges, of plots and betrayals, of battlefield brilliance and of cunning with coin … //
… The tech industry has a history of bitter rivalries: IBM and Apple in the 1980s; Microsoft and Netscape in the 1990s. But the rivalries shaping the market today are even richer and more complicated, not least because they have a personal edge. Three of the big four are still run by men who made their billions as founder, or co-founder, of their empires—Amazon’s Jeff Bezos, Google’s Larry Page and Facebook’s Mark Zuckerberg.
And although Jobs no longer rules Apple, he groomed Tim Cook, his successor as chief executive. “In the modern history of technology we have never seen such a highly engaged group of chief executives and founders,” says Mary Meeker, a partner at Kleiner Perkins Caufield & Byers, a venture-capital company.
Nor has the industry ever seen such young and feisty firms—Apple, the oldest of the quartet, was founded in 1976—with so much financial firepower. Each of the companies has developed a powerful business model. Google has turned search into a huge money-spinner by tying it to advertising. Facebook is in the process of doing something similar with the way people’s interests and relationships are revealed by their social networks. Amazon has made it cheap and easy to order physical goods and digital content online. And Apple has minted money by selling beautiful gadgets at premium prices … //
… Stark realities:
Google’s platform plans are less clearly defined. To begin with it was happy for Android phones and tablets all to be made by others, but in 2011 it decided to splash out $12.5 billion on Motorola Mobility, a handset-maker among other things. Google already markets its Google Nexus tablets, which are made by Asus and Samsung. And it has recently begun selling cheap notebooks using not Android but another of its operating systems, Chrome. Most analysts expect Google to churn out relatively cheap devices in the hope that buyers will use them to access its search and other services, thus seeing the ads on them.
And then there is the empire over the water. Microsoft, which in America is now number two in search after Google, has a willing (and desperate) vassal in Nokia, a phonemaker, and a new mobile operating system. Built into its recently launched Surface tablet, this gives it a shiny new platform of its own. Like the Targaryen family, which used to rule Westeros and now plots in exile to regain the crown, the company is desperate to regain its former glory.
Facebook has so far stayed neutral in this. But it is not a bystander in the competition to create the best possible digital shopping experience for consumers—another battle for which those platforms are being built. To win this one means taking turf from Amazon. Facebook Gifts is a new service in America which mines what the company knows about its users, their tastes and their friendships to encourage them to buy and send each other gifts at appropriate times, such as birthdays. To get it off the ground Facebook bought a gift-giving outfit called Karma and forged partnerships with over 100 companies, including Starbucks and Lindt, a chocolatier.
Google is experimenting with a service that would let folk find goods online, order them and have them delivered within a day for a modest fee. This seems similar to Amazon’s hugely successful “Prime” service, which costs $79 a year to join in America. Rather than try to replicate the e-commerce giant’s extensive network of warehouses, Google is looking for partnerships with shipping companies and retailers instead. But if it is serious about taking on Amazon, it may ultimately have to buy a logistics firm. At $69 billion UPS has a market value less than a third of Google’s; it is valued at less than twice the search giant’s cash pile.
Platforms are the weapons with which the warring factions seek to rule their own lands and conquer new ones. Patents are the weapons with which they try straightforwardly to hurt their rivals. Although some lawsuits have been launched by “trolls” who accumulate patents without actually making stuff, a number have been launched by one giant, or a company acting as its catspaw, against one of the others. Apple has been lobbing lawsuits around in the smartphone arena as if armed with a trebuchet. Google snapped up Motorola Mobility in large part to get its hands on the firm’s thousands of patents issued and pending, thus bulking up its own defences and accumulating ammunition to fling at the fortresses of the competition.
With the battlefields seeming to multiply every quarter—mobile wallets, cloud computing and who knows what else—picking out the strategic shifts over the tactical setbacks is hard. Today’s apparent failures may contain the seeds of future victories. Google+, Google’s latest attempt to lay siege to Facebook, has its flaws. Apple was woefully under-prepared for its assault on Google Maps. But if Google wants to progress in the social arena, and Apple in location-based services, they have to make bold bets, and in both cases they have at least gained some sort of beachhead. The challenge the firms face is to move beyond the initial disappointment cannily enough to turn the openings into successes.
No one looks likely to win quickly. “There will be a lot of trench warfare,” predicts Roelof Botha of Sequoia Capital, a venture investor. And that looks likely to be great news for consumers, who will be able to choose from an ever wider range of innovative and cheap (or free) technologies. Of course, as competition increases, firms might be tempted to lock down their heartlands more tightly—or to use foul means to attack those of others. This is bringing regulators out of their lairs. “You’re starting to see an empire-strikes-back moment amongst antitrust authorities,” says Adam Thierer, a researcher at George Mason University.
Watchdogs in Europe and America have been looking into accusations that Apple has colluded with some publishers to break Amazon’s grip on e-books. And they have been scrutinising Google too. Some companies, including ones with links to Microsoft, have accused the search firm of unfairly promoting its own services, such as Google+, in search results. They also claim that it uses content from competitors without permission, and that it has struck anti-competitive deals in search advertising. The firm is under fire for allegedly using smartphone patents to stifle competition. Google’s legions of lawyers have been battling these charges.
Their lordships Page, Cook, Zuckerberg and Bezos thus need to map a course for their respective firms through dangerous legal and regulatory territory. At the same time they have to avoid being distracted from fighting their rivals; the mad emperors of Microsoft lost a lot of ground by taking on the inhuman might of the Department of Justice. And the shareholders, hungry for returns in a moribund global economy, need to be kept happy.
A king who pulled all this off might claim the throne by right; but his chances of being more than first among equals, or of a lengthy reign, would be slim. As in Westeros, these battles and plots promise many more sequels and series.
(full long text, a graph, pictures and a battle ground map).