Tech’s ‘Frightful 5’ Will Dominate Digital Life for Foreseeable Future
Tech’s ‘Frightful 5’ Will Dominate Digital Life for
Foreseeable Future
By Farhad Manjoo STATE OF THE ART JAN. 20, 2016
There’s a little parlor game that people in Silicon
Valley like to play. Let’s call it, Who’s Losing?
There are currently four undisputed rulers of the
consumer technology industry: Amazon, Apple, Facebook and Google, now a unit of
a parent company called Alphabet. And there’s one more, Microsoft, whose
influence once looked on the wane, but which is now rebounding.
So which of these five is losing? A year ago, it was
Google that looked to be in a tough spot as its ad business appeared more
vulnerable to Facebook’s rise. Now, Google is looking up, and it’s Apple, hit
by rising worries about a slowdown in iPhone sales, that may be headed for some
pain. Over the next couple of weeks, as these companies issue earnings that
show how they finished 2015, the state of play may shift once more.
But don’t expect it to shift much. Asking “who’s losing?”
misses a larger truth about how thoroughly Amazon, Apple, Facebook, Google and
Microsoft now lord over all that happens in tech.
Who’s really losing? In the larger picture, none of them
— not in comparison with the rest of the tech industry, the rest of the economy
and certainly not in the influence each of them holds over our lives.
Tech people like to picture their industry as a roiling
sea of disruption, in which every winner is vulnerable to surprise attack from
some novel, as-yet-unimagined foe. “Someone, somewhere in a garage is gunning
for us,” Eric Schmidt, Alphabet’s executive chairman, is fond of saying.
But for much of the last half-decade, most of these five
giants have enjoyed a remarkable reprieve from the boogeymen in the garage. And
you can bet on them continuing to win. So I’m coining them the Frightful Five.
It’s not just because I’m a Tarantino fan. By just about
every measure worth collecting, these five American consumer technology
companies are getting larger, more entrenched in their own sectors, more
powerful in new sectors and better insulated against surprising competition
from upstarts.
Though competition between the five remains fierce — and
each year, a few of them seem up and a few down — it’s becoming harder to
picture how any one of them, let alone two or three, may cede their growing
clout in every aspect of American business and society.
“The Big Five came along at a perfect time to roll up the
user base,” said Geoffrey G. Parker, a business professor at Tulane University
and the co-author of “Platform Revolution,” a forthcoming book that explains
some of the reasons these businesses may continue their dominance. “These five
rode that perfect wave of technological change — an incredible decrease in the
cost of I.T., much more network connectivity and the rise of mobile phones.
Those three things came together, and there they were, perfectly poised to grow
and take advantage of the change.”
Mr. Parker notes the Big Five’s power does not
necessarily prevent newer tech companies from becoming huge. Uber might upend
the transportation industry, Airbnb could rule hospitality, and as I argued
last week, Netflix is bent on consuming the entertainment business. But if such
new giants do come along, they’re likely to stand alongside today’s Big Five,
not replace them.
Indeed, the Frightful Five are so well-protected against
start-ups that in most scenarios, the rise of new companies only solidifies
their lead.
Consider that Netflix hosts its movies on Amazon’s cloud,
and Google’s venture capital arm has a huge investment in Uber. Or consider all
the in-app payments that Apple and Google get from their app stores, and all
the marketing dollars that Google and Facebook reap from start-ups looking to
get you to download their stuff.
This gets to the core of the Frightful Five’s
indomitability. They have each built several enormous technologies that are
central to just about everything we do with computers. In tech jargon, they own
many of the world’s most valuable “platforms” — the basic building blocks on
which every other business, even would-be competitors, depend.
These platforms are inescapable; you may opt out of one
or two of them, but together, they form a gilded mesh blanketing the entire
economy.
The Big Five’s platforms span so-called old tech —
Windows is still the king of desktops, Google rules web search — and new tech,
with Google and Apple controlling mobile phone operating systems and the apps
that run on them; Facebook and Google controlling the Internet advertising
business; and Amazon, Microsoft and Google controlling the cloud infrastructure
on which many start-ups run.
Amazon has a shopping and shipping infrastructure that is
becoming central to retailing, while Facebook keeps amassing greater power in
that most fundamental of platforms: human social relationships.
Many of these platforms generate what economists call
“network effects” — as more people use them, they keep getting more
indispensable. Why do you chat using Facebook Messenger or WhatsApp, also owned
by Facebook? Because that’s where everyone else is.
Their platforms also give each of the five an enormous
advantage when pursuing new markets. Look how Apple’s late-to-market
subscription streaming music service managed to attract 10 million subscribers
in its first six months of operation, or how Facebook leveraged the popularity
of its main app to push users to download its stand-alone Messenger app.
Then there’s the data buried in the platforms, also a
rich source for new business. This can happen directly — for instance, Google
can tap everything it learns about how we use our phones to create an
artificial intelligence engine that improves our phones — and in more
circuitous ways. By watching what’s popular in its app store, Apple can get
insight into what features to add to the iPhone.
“In a way, a lot of the research and development costs
are being borne by companies out of their four walls, which allows them to do
better product development,” Mr. Parker said.
This explains why these companies’ visions are so
expansive. In various small and large ways, the Frightful Five are pushing into
the news and entertainment industries; they’re making waves in health care and
finance; they’re building cars, drones, robots and immersive virtual-reality
worlds. Why do all this? Because their platforms — the users, the data, and all
the money they generate — make these far-flung realms seem within their grasp.
Which isn’t to say these companies can’t die. Not long
ago people thought IBM, Cisco Systems, Intel and Oracle were unbeatable in
tech; they’re all still large companies, but they’re far less influential than
they once were.
And a skeptic might come up with significant threats to
the five giants. One possibility might be growing competition from abroad,
especially Chinese hardware and software companies that are amassing equally
important platforms. Then there’s the threat of regulation or other forms of government
intervention. European regulators are already pursuing several of the Frightful
Five on antitrust and privacy grounds.
Even with these difficulties, it’s unclear if the larger
dynamic may change much. Let’s say that Alibaba, the Chinese e-commerce
company, eclipses Amazon’s retail business in India — well, O.K., so then it
satisfies itself with the rest of the world.
Government intervention often limits one giant in favor
of another: If the European Commission decides to fight Android on antitrust
grounds, Apple and Microsoft could be the beneficiaries. When the Justice
Department charged Apple with orchestrating a conspiracy to raise e-book
prices, who won? Amazon.
So get used to these five. Based on their stock prices
this month, the giants are among the top 10 most valuable American companies of
any kind. Apple, Alphabet and Microsoft are the top three; Facebook is No. 7,
and Amazon is No. 9. Wall Street gives each high marks for management; and
three of them — Alphabet, Amazon and Facebook — are controlled by founders who
don’t have to bow to the whims of potential activist investors.
So who’s losing? Not one of them, not anytime soon.
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