Why businesses are increasingly fearful of technology companies, and why they are right to be
A growing number of articles in various media point to a growing fear in the traditional corporate world of the new technology giants. Factset data analysis of references to technology companies in public records of traditional companies, shows that Amazon is now the most feared, taking over from Google.
What has happened for these companies to go from inspiring positive feelings and being seen as creators of products that help us in our daily lives to being seen as a threat? The short answer is their rapid growth. In a relatively short time, they have grown from “nice” companies to monsters with market capitalizations that exceed those of the traditional big beasts.
Apple is now worth more than $800 billion, Google is close to $700 billion, Facebook exceeds $500 billion and Amazon close to catching them up, making them among the most valuable companies in the world. In addition, unlike traditional companies, which typically operate in a single sector or product, “technology” covers a multitude of sins: Google and Facebook are regarded by most analysts as advertising companies, but they could soon be manufacturing hardware, competing in any number of sectors, or even be classified as media, with some defining elements to to so. Facebook has gone from providing a service to keep in touch with friends and family to playing a key role in the US presidential election within three years.
In 2009, in his book “What would Google do?”, Jeff Jarvis argued something to the effect that it doesn’t matter what you do, because Google will end up doing it better than you, and for free. Since then, Google has become a holding company, Alphabet, which bets on companies and technologies still in their early phase and is active in areas ranging from motor vehicle to health sciences, telecommunications, hardware, the smart home, agriculture and robotics, to name just a few. If it moves into your sector, don’t worry: after it has bankrupted you, it will offer to help you out.
Apple used to make computers, then music players, then smartphones, and is now the world’s biggest seller of watches. Facebook too is expanding into new areas and is prepared to spend billions of dollars on anything that might represent competition, and aside from helping us keep in touch with friends and family, now provides news, content and even consumer items. As for Amazon, in addition to selling just about more stuff than anybody else on the planet, is now using machine learning algorithms to work out the next sector to move into, and when it does, it will not limit itself to simply being another competitor, but will revolutionize the way that sector operates.
These are companies with varying levels of transparency — from Google’s theoretical information without limits to Amazon or Facebook’s dissembling, competitors in a four-horse (or maximum five or six) race to dominate artificial intelligence, with everybody else reduced to the status of clients. The new frontier of competitiveness is far removed from what traditional companies once understood as a sustainable competitive advantage: we are no longer talking about strategy, execution, pricing or marketing, but the development of more intelligent algorithms than those of your competitors.
The dream of today’s talent is no longer to work in a bank, as a consultant or for an automobile company: it is to be able to put on their CVs that they work or have worked in the tech sector. Tech companies attract the best talent, meaning that the distance between their management techniques and those of traditional companies is now insurmountable.
For many years now, I have been using these companies as examples in my classes and presentations, to shake up my students and audiences, and I can attest that this fear of technology companies increases with time, (regardless of whether they sell advertising or cars, transport people, are in the media, offer accommodation, or are in banking or retail) and that more and more industries are under threat.
Technological disruption is now an inescapable reality, and the factors that define successful strategies have completely changed. Technology companies are not the problem, they are a symptom. And what businesses in every sector need to understand is that managing as they have done for the last 20 years despite the changes in the context of their industries is a losing game.
(En español, aquí)