As the world becomes smaller and smaller from digitization and globalization, many brands are becoming bigger and bigger. There was a time when being too big was a disadvantage because of the layers of bureaucracy and the lack of agility, innovation, and entrepreneurship. Digital technology has changed all of that. The bigger, the better. In the book authors Robert Atkinson and Michael Lind conclude that large companies are more productive, innovative, and diverse than small ones. The number of mergers and acquisitions have doubled since 1997 to 48,825 in 2016 with a total value of $3.62 trillion. Last November on “Single Day”, giant online Chinese retailer, Alibaba racked up more than $38 billion in sales in 24-hours. To put this into perspective, this is more than the yearly GDP of countries like Paraguay and Iceland. Killer brands are also collecting more consumer information and data than ever before. In 2017, estimated that 2.5 exabytes (add 18 zeros) of online data are generated worldwide every day. To put this in prospective, one exabyte is one quintillion, take 2.5 quintillion pennies and you can cover the entire surface of the earth five times! Market intelligence company IDC predicts the world’s digital data will grow to 175 zettabytes (add 21 zeros) by 2025. With this much data power are killer brands monopolizing and manipulating markets and consumers, forcing consumers to pay more, destroying competition and innovation? Are domineering brands killing free enterprise?
Some killer brands are stronger and wealthier than many nations. McKinsey Global Institute says that 10 percent of the world’s listed firms generate 80 percent of all global profits. The top 20 global brands control over 42 percent of the world’s economy. If you dig deeper, you will see that some brands clearly dominate in several industry categories. Interestingly, the Technology sector, worth over $5.7 trillion, has the greatest concentration with over 50 percent controlled by four brands: Alphabet (Google), Microsoft, Apple, and Facebook. Similarly, the Consumer Services category, worth $2.6 trillion (about the size of France’s GDP), is controlled by two brands: Amazon and Alibaba. With so much control and money, can we trust that these brands have the our best interest at heart? In essence, these are brand-nations with a huge responsibility to society. These dominant brands are accountable only to shareholders; shareholders are only interested in profits and ensuring the brands continual expansion. Currently, there is a major debate on whether dominant killer brands are healthy for economic growth in free enterprise world commerce.
Death Row for Past Killer Brands
Go back one hundred years and the dominant brands were very different with US Steel, American Sugar Refining Company and Standard Oil in the forefront.
Standard Oil was founded in the late 1870s under John D. Rockerfeller. The story goes that Mr. Rockfeller expanded the brand by bullying suppliers for preferred rates and buying out many small competitors. At one point, Standard controlled nearly 90 percent of US oil production. In 1890, the US Congress passed the Sherman Antitrust Act which outlawed monopolistic business practices. After several legal manoeuvres, the world’s most powerful company, Standard Oil, was finally ordered by the US Supreme Court to break up into 34 independent companies. It is believed that Standard Oil came under heavy public criticism and outrage after investigative journalist Ida Tarbell published a 19-part series of articles damning Mr. Rockfeller and Standard Oil as ruthless and immoral. Today, these companies are now some of the world’s largest Oil & Gas brands like ExxonMobil, Chevron, and ConocoPhillips.
In 1969, the US government took a run at IBM who at the time had nearly 70 percent of the business computing industry, but the case never amounted to any significant action. While the case dragged on for over 13 unlucky years, the distracted IBM company missed out on personal computer innovations. This was a death sentence for the company.
The next big shake-up wasn’t until 1983 when the Bell System monopoly was broken-up. Bell Systems started as a monopoly back in 1876 with the help of patents that did not expire until 1915. This lone brand built a massive telecommunications infrastructure network across the USA. Today, the many Baby Bells contains well-known brands such as: Verizon, AT&T, CenturyLink, and US West, to name a few.
In the 1990’s Microsoft tried to force the computer industry to bundle their web browser with the operating system to control the market. This destroyed the top competitor Netscape and caused the US Department of Justice to file antitrust charges against Microsoft. While Microsoft wasn’t broken up during the appeal process, the distraction allowed for companies like Google to gain an edge. Senator Elizabeth Warren says the antitrust case “helped clear a path for Internet companies like Google and Facebook to emerge.”
Today’s Killer App Brands
We know the big six killer brands. We interact with them daily and sometimes hourly: Alphabet (Google), Microsoft, Apple, Facebook, Amazon, and Alibaba. They are all technology, digital application driven and American, except for Alibaba. American brands account for a disproportionate percentage of the world’s largest brands. Elvis Picardo, Portfolio Manager, attributes this phenomenon to a strong US equity market, a strong US currency, and premium valuations (mega-caps).
Collectively, these companies have defined the world’s culture and drove the information and digital revolution. They have changed our lives: how we work, play, and think. They have contributed to political upheaval; misinformation; economic, social, and technological trends; and other changes beyond our imagination. Together, their total market value is over $4 trillion, equitant to Germany’s GDP (4 thlargest in the world). Freelance writer Daniel Baylis says, “The benefit of being one of the biggest brands of the world is that you often get to define the rules of the game.”
This statement is very true. Apple redefined the music industry. They destroyed the recording industry and record labels. Today, Microsoft’s windows system has only 80 percent of the desktop operating system market share. Back in 2013, it had over 90 percent of the market share. Amazon redefined the book industry forever and is in the process of destroying the bricks and mortar retail industry. Without Google we would never find anything on the internet. Try navigating over 1.5 billion websites without Google. Facebook has played a major role in overthrowing governments and making political movements a reality both positively and negatively. They have also driven the human psych to crave more “likes” by the minute. Alibaba is still behind Amazon in e-commerce revenue, but it continues to defy expectations with constant growth of over 50 percent every quarter. It doesn’t hurt that they have 1.4 billion potential consumers.
Collectively, Google and Facebook control over 60 percent of the global online advertising market (excluding China). This year, the duopoly is forecast to pull in $174 billion in ad revenues. Together, they’re redefining the advertising industry.
All of these numbers are mind blowing, but this is the world these brands live in. It’s not hard to believe that in the world of trillions and billions, the average consumers can get lost between the commas. The interesting fact is that these companies are making billions because they know us better than we know ourselves. What is good for the brand might not be good for you or me. Ram Shivakumar, economic professor at The University Chicago Booth School of Business says these brands have given us enormous benefits to our quality of life. But he cautions that “the value of these contributions shouldn’t blind us to the dangers posed by the power modern superstars have accumulated.”
To keep their dominate power, these brands either buy out potential start-ups or drive them out by pricing or other predatory activities. This killer instinct is better known in the venture capitalist world as the “Kill Zone”, where start-up don’t have a chance of competing.
Facebook has become a brand we love to hate but not enough to logout forever. The fear of missing out is too great for most people. While our commitment to Facebook doesn’t have a financial impact (because its free for users), we do pay dearly, giving up our privacy as they collect personal data that they have sold and misused. Facebook estimate that more than 2.1 billion people use Facebook, Instagram, WhatsApp, or Messenger every day and around 2.7 billion people use at least one of their services each month. Facebook’s on track to bring in over $60 billion in total revenue in 2019.
Its through their active database that they can tell if a competitor app is getting too hot for comfort. The “Kill Zone” around Facebook is big. They either buy them out (like Instagram and WhatsApp) or mimic their popular features like Stories and Bonfire to neutralize Snapchat and Houseparty apps. Linette Lopez, a political journalist, said Facebook used user-data against smaller rivals such as Vine. In essence, they destroyed the Vine app by blocking its friend finding feature.
Before the acquisition, Instagram had only 30 million user and 13 employees. Today, they have over 1 billion monthly active users and LinkedIn indicates they have over 9,000 employees. Facebook has the power to make or break any start-up. Wikipedia says Facebook has acquired 82 companies so far.
Free or not, Facebook has had its fair share of negative press and global regulatory attention due to mishandling of private personal data, disseminating fake news (especially for the Russian military-intelligence agency), and severe data leaks.
Anna Johansson, marketing and PR consultant, says, “Facebook is obviously operating in some contentious and ambiguous ethical territory, and some of the decisions it has made in the past decade are somewhere on the spectrum between short-sighted and dumb.” Andrew Burt, Chief Legal Officer at ,is less polite and states that the privacy and online security risk is too great for consumers. He believes governments must “diminish the vast power of companies like Facebook by limiting their ability to hoard the data they collect and to aggregate the services they provide, contracting their ‘attack surface,’ so to speak, to a level that is manageable.”
If Google used its dominance to gouge us on prices, we would all be up in arms or become a fan of Yahoo. The problem is we don’t see their revenue model. Why would we be upset with services (such as search, Gmail, Google Docs, Translation & Maps) that are free and some of the best services. Google controls over 88 percent of the internet search market share. Statista states that there are about 4.5 billion active internet users or 58 percent of the global population. That would mean that Google touches around 4 billion people or 52 percent of the world’s population. Should we be worried?
Google has more data on us than any other internet service. They know our wants, needs, and desires — priceless for the marketer. Getting a marketer’s message to the right audience, at the right time, is the ultimate goal. In 2018, Google made $116 billion in advertising. With a war chest of billions of dollars, they are free to buy-out potential competitors that get in their “Killer Zone” and pick up new innovations before they are hot. To date, they have acquired over 120 such companies.
In their data harvester information, Google listed 10 principals that are important to making “money without doing evil.” There are many companies that are extremely frustrated with Google’s behaviour, but the average consumer remains blissfully ignorant. The Federal Trade Commission investigated Google and concluded that they used their dominance to make competitors harder to find on its search engine. A simple ranking algorithm mishap or change can destroy a competitive brand. Who is watching Google to ensure their definition of “evil” is the same as ours? To date, they have been fined $2.7 billion for violating antitrust regulations in Europe.
Amazon has been accused of hurting suppliers, competitors, and even their own employees, but their growing online customer base is addicted to their competitive prices, convenience, huge selection, and fast delivery system. While they destroyed the original bookstore market, they made books more sustainable and environment friendly as long as you have their e-reader. The company commands 50 percent of all book sales in the United States and 75 percent of all e-book sales. There has been a number of reports of Amazon using its dominance to pressure publishers into more desirable agreements.
Their goal is to have e-books be the gateway to the store of everything. So far, about 197 million people visit their online store each month. Over half of American households are Amazon Prime subscribers. In 2018, Amazon’s share of the US ecommerce market was 49 percent and still growing.
The tactics they use to keep growing is the concern. recounts in his book how Amazon wanted to get into the diapers business and reached out to Quidsi who owned diapers.com. They weren’t interested in selling. This led Amazon to set up the Amazon Mom Promotion, where they discounted baby products including diapers and free delivery basically forcing Quidsi to call “uncle” and sell to Amazon. Amazon then quickly retired Diapers.com. This is a perfect example of how the “Kill Zone” works. To date, Amazon has acquired 101 companies and has a stake in another 22 companies.
Amazon’s ultimate power is its transactional data. They can see what is trending and what is hot. They aren’t just happy with being the biggest online marketplace for other vendors but want to get into the action directly through their own product brands such as Amazon Basics and Amazon Essentials. This is not dissimilar to supermarket house brands, but they don’t stop there. They have many other brands that aren’t associated with Amazon as Goodsport, Lark & Ro, North Eleven, and Society New York. TJI Research Inc. recently reported that Amazon has more than 450 brands sold exclusively on Amazon. The third-party brands don’t have the complete picture like Amazon who has all the consumer data and expertise to react to analytics. Is this a conflict of interest?
There is always one bad apple, but Apple is hard to dislike. They made music accessible to everyone through iPods and other Apple devices. They took everything big and made it small and portable. Their closed ecosystem business model is brilliant. Every transaction that goes through their iOS has a positive financial benefit for Apple. Some call it the Apple 30 percent vendor tax. Jonathan Prince says “…Apple makes more off a Spotify subscription than it does off an Apple Music subscription and doesn’t share any of that with the music industry. They want to have their cake and eat everyone else’s too.” As of June 2017 (the most current statistic), 180 billion apps have been downloaded from Apple App Store.
Apple has always been seen as an exclusive luxury brand with profit margins (32 percent) similar to Hermès (35 percent) and Ferrari (29 percent). Think about it. They can sell a phone at $999 and sell 29 million of them in less than two months. That’s what happen in 2017.
Apple has also acquired its fair share of potential competitors. Wikipedia reports about 100 competitors, but they state Apple doesn’t regularly release financial details on mergers and acquisitions. In May 2019, CEO Tim Cook told CNBC that Apple acquired a company every two to three weeks on average, having acquired 20 to 25 companies in less than six months. Sounds like the “Kill Zone” is alive and well at Apple.
Apple has had its fair share of antitrust lawsuits for anti-competitive practices, price-fixing accusations, tax avoidance schemes, and deplorable working conditions in Asian electronic sweatshops. Their aggressive business tactics only negatively affects vendors, app developers, and competition — not customers. Keeping their customer happy is priority number one.
Amazingly Microsoft has been around for over 44 years and has been a dominate player in the personal computer operating system market since the mid-1980s. Its founder, Bill Gates, is one of the largest philanthropists in the world, reportedly donating over $45 billion in the last 25 years. Today, Microsoft understands how to protect its market without raising the concerns of the antitrust police. Since its conception, Microsoft has acquired over 225 companies and has investments in over 60 other companies.
Alibaba is Amazon’s nemesis. Established five years later than Amazon, it continues to grow exponentially in it’s region. These two killer brands have many things in common except that Alibaba has over one billion potential customers in China compared to Amazon’s half billion in North America and Europe. Ming Zeng a long-time executive at Alibaba and currently the Chief Strategy Officers says Alibaba is more than another online commerce company and “does what Amazon, eBay, PayPal, Google, FedEx, wholesalers, and a good portion of manufacturers do in the United States, with a healthy helping of financial services for garnish.” Their goal isn’t just to conquer China, but Southeast Asia, India, Africa, Europe, and, hopefully, the US. I’m not going to get into any China rhetoric, but this brand could be the biggest killer brand the world has every seen.
Since it’s inception, Alibaba has only acquired 29 organizations, a small number for a killer brand. The large problem with Alibaba is that we don’t have full transparency on this company as it resides in secretive China.
Serial Killers on the Loose
Killer brands have enjoyed a world unhindered by rules and regulations as they define the future. Consumers have embraced these new toys and innovations, regardless of the consequences. These killer brands have empowered consumers and enlarged their brands. Consumers are addicted to this new digital world and the ability to be in control, but without guidelines and clear values, this empowerment can lead to chaos and bad decisions both by consumers and companies. Unencumbered by laws and regulations, killer brands have been able to prosper and make shareholders, employees, and governments very wealthy. The trillions and billions of dollars I have quoted are unimaginable and impossible to comprehend, but they are real. To date, we have relied on these brands’ corporate governance to do good and not evil. Many consumers are oblivious to the risks and dangers; they are addicted to the digital candy and satisfaction what these brands give them.
Our antiquated legal systems, laws, and regulatory framework haven’t been able to keep up with the digital revolution. The US is still protecting consumers from monopolistic business practises defined by the Sherman Antitrust Act passed by the US Congress in 1890. The world and business practises specifically have changed a lot in 130 years! In the last decade, the killer six have made over 657 acquisitions with little to no challenge from antitrust authorities. In some cases, these acquisitions propelled these brands to new heights, but many were just killed or silently integrated to reduce competition.
The problem today is that the authorities don’t have the tools, the understanding, or the laws to protect humanity in this new digital world. The scary part is that technology isn’t waiting for the authorities to catch-up. Technology is advancing at warp speed. Governments can only protect us if they know how, which means they need to be smarter than the killer brands. A scary thought indeed!
The German consumer isn’t as trusting as North Americans. Their history has trained them to be fearful of mass data collection and unchecked powerful forces. They are one of the few countries that haven’t embraced credit cards and debit cards for fear of leaving a digital path. Not surprisingly, they are at the forefront of data privacy and protection. They are currently trying to stop Facebook from aggregating consumer data between their various platforms (Facebook, Instagram and WhatsApp) and other third-party site data collection.
Throughout history we have seen that extremely concentrated wealth and power that hasn’t benefited humanity. Toby Walsh, professor of artificial intelligence cautions that immense wealth comes with immense impact and responsibility. He says, “We’ve always had to regulate markets; unfettered capitalism tends to go to excess. Regulation is needed to ensure that companies act in line with the public good and not just the stock options of their CEOs.”
The winner-take-all approach comes with many risks. History tells us that governments take actions only when consumers aren’t happy. Today, the killer six are focused on keeping consumers happy, but what happens when they aren’t? With all the data monitoring killer brands have they will know this answer before we do.
As these killer brands race towards the internet-of-things with further digitization and data harvesting who will protect the consumer? The world has never seen such massive, powerful brands with their ability to invade consumer privacy, monopolize new markets and quietly destroy competition on their quest to dominate. Will this quest eventually translate into political power and the demise of free enterprise? Only time will tell.
Originally published at http://rozdeba.com on February 6, 2020.