The power of big tech companies

This month my blog posts are around trending tech issues. We hear a lot in the news about technology and a few trends were mentioned briefly at the NZPI conference. It got me thinking about how we connect these big tech news stories with what is happening in our lives and professional practice.

This post: 

The power of the big tech companies

Facebook is under the spotlight this week as US lawmakers consider whether to regulate the social media giant. If you are not into Facebook, it can be easy to ignore this story however it heralds important changes which impact on our society as a whole. It is a start towards governments bringing law to the workings of technology (see my post on the wild frontier). The fundamental question is about whether a company should be able to use information it collects about how you think and use it to influence your behaviour. More on that later in the month, but for now let’s look at market distortion, what the big tech companies are about and what trends we can understand from them which may impact on our planning.

Market distortion

Firstly, we need to take a look at what is behind this concern with a concentration of power. Skip ahead if you paid attention in economics. There are a number of ways that the economic market place can become distorted. Monopolies, for example. We all understand that abuse of monopoly power is bad for society. Here in NZ, the Commerce Act has rules to prevent monopolies. Company mergers which may result in a monopoly need to be scrutinised by the Commerce Commission. These old principles for management of market distortion are changing in several key ways, but first it is important to understand three key concepts:

Horizontal integration means growing your power by merging with your competitors in the same industry.

Vertical integration involves acquiring companies at other steps in the production process, up and down stream of your existing activity. For example a manufacturer may purchase the companies which provide key materials for its factory as this gives them better control of the whole production process.

There is an identified extent of the market – There is an assumption around the size and location of the marketplace when you are regulating against commerce which distorts the market. A monopoly needs to be assessed in the context of a defined market.

Super-companies

Just like in earlier periods of great change such as the industrial revolution, companies who lead and innovate in certain technologies, are bringing fundamental change to markets. It goes beyond vertical or horizontal integration. The super-company can extend across the industry and up and down the production chain. Not only that, it can disrupt the entire industry and re-write the proposition of the economic transaction entirely. Examples include Uber, Netflix, iTunes and Airbnb. The markets for products and services such as taxi’s, video hire, CD’s and accommodation have been irrevocably changed.

Welcome to the world of ‘big tech’…but it is not a bunch of tech firms operating in the same market. They are operating in and succeeding in lots of different markets. As you can imagine, they are under fire from governments, watchdogs and consumers due to the vast monopoly they have not only on their primary market, but through the use of data, the influence they have on people’s everyday thoughts, feelings and actions.

So who are these big companies and what do they do? And where are they going next? We know they are getting to where they are going fast. Two years ago they were collectively worth 2.2 trillion. Now this has risen to 3.3 trillion. In two years.

Normally there are the big four, but often Microsoft is added in and indeed I think that is appropriate for this post. Many of us use Microsoft products daily and intrinsically understand what it is all about.

  1. Amazon is well known for ‘shopping and shipping’ – it sells its own products but it also assists others to sell and deliver their products. Its next step appears to be to get its smart products into your soon -to-be smart home. In a future where the appliances in your home look after re-stocking and maintenance themselves, you are less conscious of the individual purchasing decisions being made. The fridge re-orders the food and the washing machine books its own service technician. The home itself is the main household shopper of the future.
  2. Apple perfects vertical integration. It aims to supply the whole tech suite to its customers from hardware, software, operating system, apps and media. It aims to be a one stop shop and curates the best user experience, saving its customers from needing to make numerous small decisions on technology features, purchases and subscriptions. This positions it across many of the products and services an individual needs for modern life and work.
  3. Facebook is a platform for human social relationships but in a business sense it is all about internet advertising. It is about connecting advertiser content with human eyeballs. This is how it makes its money. It is under fire for how it uses the data it collects to become better at its primary activities. For consumers who use Facebook for social media, news, business and product research and entertainment, it is the dominant platform in many spheres of life. And in getting that daily life done, there are targeted ads all along the way.
  4. Microsoft was focused on the desktop computer software market yet has now moved this concept to a ‘software as a service’ model. This SaaS will give it an ongoing income stream. It has also got into growth areas such as cloud computing as technology moves to cloud storage rather than device-based memory.
  5. Google is part of the Alphabet conglomerate of companies. Primarily Google is of course about web-searching. And internet advertising to pay for the web-searching. When we google something we think of Google going out and getting our search result right there and then. However how it actually works is that Google’s technology does a lot of homework behind the scenes preparing indexes and catalogues of the content of the web. It also follows your personal Google use habits as this means it is more likely to give you the results you are looking for.

And this last point on Google raises exactly why these companies are succeeding – their business model is not just based on integration, innovation and disrupting markets. It is doing so with the benefit of powerful personal data which allows it to evolve much faster than most other forms of economic activity.

For example, you can google to find a restaurant or you can google to find a holiday destination. If you google both in the same browser session, google may make an assumption that you are interested in restaurants at your holiday destination rather than locally. So the results it will give you are for restaurants in your area and in the holiday destination you were researching. When you click on the results, it gets your confirmation about how well its assumption helped you find the information you wanted. It essentially pegs you as the hyper organised type that wants to think about restaurants and attractions when you book the holiday rather than the type of less organised person who wants a restaurant recommendation while dressing for dinner. By knowing how you think about different purchasing decisions, Facebook can offer advertisers some potentially very effective advertising options.

It is made all the more powerful when you recognise the scope of companies under the Alphabet group e.g. YouTube, Android, Play Store and Gmail.

So, how does this relate to us?

So what does this mean for planners? While there are wider influences on all of society, we can use these company’s stories to understand issues we manage in resource management.

Amazon – the future of retail. Some land use activities are changing dramatically.  Bricks and mortar retailers no longer compete with each other, they compete with globalised supply changes and super-companies such as Amazon. The changing face of retail in our communities is about hyper-local retail which is integrated with residential environments so that customers get a personalised experience which they cannot get with an online purchase.

Apple – vertical integration up and down the supply train is not limited to tech firms. We may see all sorts of industries think more carefully about building better efficiency through consolidating complementary operations in one area. This may mean changes in how we plan for business activities e.g. larger areas for greenfield business parks as companies consolidate operations.

Facebook – the future of social interaction is unclear. Will it continue to grow online, or will we see a resurgence of social interaction in the real world. The answer is probably a bit of both regardless of what happens with Facebook in the news. Much of our work as planners is around ensuring that sufficient social benefits are provided in communities. We want to ensure parks, community buildings and informal meeting spaces are provided to enhance the livability of an area. We face new challenges in ensuring that people can stay off their device long enough to enjoy local places and talk with their fellow community members. Social interaction in the real world becomes important as online social interaction is bogged down in advertising, info overload, spam and screentime health effects. People will want to meet and experience neighbourhood life. Some people who are disconnected will actually need this for their very health and wellbeing.

Microsoft – the future is subscriptions rather than purchases. Many things that today we buy as products will become services in the future, bought on a subscription basis. At the NZPI conference we heard a lot about mobility as a service (MaaS) and software as a service is the default these days (e.g. Netflix and Spotify vs CD’s and DVD’s). Moving from goods to services has implications on how our cities operate which will flow through to the activities we manage. For example MaaS may avoid the need for car parking in city centres as vehicles will never need to park as they continue on to the next customer. Given the area taken up by car parking in our cities and towns, this changes a fundamental assumption around the land use activities which we manage.

Google – This one is a little more difficult to apply to resource management. The themes are around the importance of and access to knowledge itself. In a world were all affected parties and stakeholders head to google first, we need to understand what that does for our processes.  Dealing with Big Tech is like trying to barter with a mind reader, she always knows your next move and will come out of the deal better off. How do we engage with our communities and ensure they make informed decisions on the protection and use of resources rather than finding unhelpful information and spending time distracted by ads?

Join me next week when I talk about blockchain, commonly heard about in relation to bitcoin but it is a whole lot more.

If you haven’t caught up on the Facebook hearing it makes for some interesting viewing. From senators who clearly do not know even the business premise of Facebook, through to some clever questioning about Mr Zuckerberg’s own privacy. Here are some video links of the highlights:

BBC News

MSN News linking to Washington Post

Fortune

 

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