As the French saying goes, ‘Plus les choses changent, plus elles restent les memes'. Literally translated, it means ‘the more things change, the more they stay the same.' Surely not the phrase you'd associate with things like social networks and consumer electronics. After all, a new smartphone or software upgrade appears every few months, if not weeks. Tweak the phrase a bit for the top four in the business and it'll be “The more Facebook, Google, Apple and Amazon change, the more they start to look the same.” Sounds like a bit of a hyperbole, doesn't it? But could there be some truth to that?
Revenue stream
It gets interesting when you look at how the aforementioned companies rake in their moolah (short for Revenue Stream) from peddling their products and services. Google and Facebook depend on revenue from advertising, Apple on its mobile products and Amazon follows the good old-fashioned way of selling a whole lot of physical goods, web services and e-books online. A look at what the four companies have been doing over the last one year could provide vital clues into what lies in store over the next three years.
Consider this. Apple continues to negotiate with movie studios, television producers, publishers and media companies for content to hawk through iTunes and iBook stores. It is trying to allow users to synchronise their content across Apple's family of devices.
It is also trying to make the user experience better by building access to the cloud right into their products. It is doing this even as its products such as the iPhone, iPad and Mac range of computers gain market share and become cheaper. The company's most recent mobile OS update has received rave reviews for the Siri interface.
Steve Jobs' recently released biography also offers clues that Apple may look to extend their reach with a television set (a step ahead of Apple TV) with a user interface.
Apprehensions about this new area could include lower margins in the television hardware business. Television content providers, however, have wised up to Apple's approach to content and the former could demand more than their pound of flesh. Case in point, News Corp, Disney and other owners who dropped plans to sell Hulu.com, which streams TV shows online. They are going solo on developing the site. This, despite a healthy queue of prospective buyers, which is rumoured to have included Amazon and Google.
Google's game plan
During the same one-year period, Google made efforts to ramp up its Android and Chrome OS operating systems. It acquired Motorola with the hopes of producing a more cohesive product and gaining a patent cushion against rivals. Google launched its latest iteration of Android just over a week ago and is rumoured to be mulling the launch of a cloud-based music service. Google's YouTube remains a big draw among users. However, its vast reach has not yet translated into a notable deal-flow with movie studios or television executives to distribute their content online. Add to this, the continued efforts with Google Books, Google Plus all of which are funded by the golden ‘Search' goose. Basically Google is trying to build a large reservoir of content online, which will make users linger more on Google-owned or branded sites. This could translate into more advertising revenue if it plays its cards right (get content and sell it at the right price).
Amazon's advantage
Amazon stands out as the most differentiated operator in this four-horse race (and mind you, there will be multiple winners). It started out selling a vast range of goods online. The platform it built for selling stuff has been extended into offering a range of web services for storage and delivery of cloud content.
It also branched into the hardware segment, first with a reading optimised device - Kindle, and now with the multi-touch colour tablet Kindle Fire. The Kindle Fire priced at $200 is reportedly being sold at a loss by Amazon. It must be doing this with the hope that users of the Kindle Fire will buy music, books, movies and other content, which will more than compensate for selling hardware at a loss.
Despite a sharply honed ability to sell stuff online through years of watching consumer behaviour, it has not bestowed Amazon with wildly profitable margins. Unlike the premium-priced Apple hardware or Google's money-spinning Ad Words division, Amazon's cash machine simply has not thrown up the same magnitude of cash kegs, which would come in handy for an acquisition or making sizable investments in supply chain and equipment suppliers. But years of competence at peddling content, which is currently turning out to be the most coveted commodity for online players, gives Amazon a certain gravitas as a credible competitor in the emerging platform battle.
Fiesty Facebook
Our last contender, Facebook, is the smallest in terms of revenue, but rumoured valuations put it within spitting distance of Amazon. The market estimates that advertising has been the major growth driver with a smattering of revenue from Facebook credits. The credits system lets you buy content such as games and transactions. Facebook with 800 million users has a massive captive audience to view content, listen to music, read content and pretty much anything else you can throw online at it. The one thing that might keep you wondering is how these content providers and social network guys make money off that. Facebook recently announced tie-ups with content distributors Spotify and Netflix. The strategy is to get you to listen to or watch movies influenced by what your ‘Friends' are watching or listening to. This, Facebook hopes, will earn it a slice of revenue in the same manner as Apple's iTunes or Amazon's Kindle Store.
So what we have is four companies tempting you to hop into their universes and provide you with all the stuff you want to read, listen to, watch, play or work with. The more users you manage to tempt into your universe, the more developers will want to build games or provide content for people to play with.
For the four companies in question this means more people spending time with their products and services and a larger forum or platform for the Unilevers and News Corps of the world to pitch products to. This translates into multiple revenue streams from content and ads, in addition to the profits they eke out from hardware sales (a business model which only Apple manages at appreciably). The underlying idea remains the same – companies are competing to figure out the best way to serve you the content of your choice.
Potential competitors
The narration would be incomplete without including two dark and very muscular horses: Samsung and Microsoft. Samsung is the largest producer of Google's Android-based phones in the world. In recent times, it is also the only one giving Apple a run for the money in the mobile device space. However unlike Apple, Samsung has little to offer in terms of content. It currently stands to profit only from device sales. Even these profits are being eroded by recent events such as a recent settlement with Microsoft and ongoing litigation with Apple over touchscreen devices. Samsung will pay a royalty on every Android device sold and market Microsoft's Windows 7 offering more aggressively. Microsoft, the king of the desktop OS space, has had limited success in the mobile space. Its latest offering Windows 7.5 has received rave reviews, but is yet to gain traction in terms of device sales. However, given how quickly things change in the tech space, it's likely that things will never again be the same for any of these tech majors.
adarsh@thehindu.co.in