Apple, Amazon, Google, Facebook. These companies are looking more and more like a playground for the rich, and the personalities behind these organisations, the disciples of our generation. These companies are all gatekeepers to their own private playground. They’ve nearly appropriated the internet. That doesn’t sound like the early vision as I remember it, yet inevitable probably, so lets move on. (The NRA seems to have a similar take on the Constitution.)
I’m guessing that Tim Berners-Lee
Al Gore is awed by the power that these companies have amassed, based overwhelmingly on two very simple ideas: a shared connectivity protocol – IP, and a shared language – HTML.
But let’s go back to the vision thing and consider that Dream, that disruptive change, The Internet, which opened up the future for our generation’s modern industrialist. That dream still keeps thousands if not millions of entrepreneurs up at night. How can I improve my business on the internet? How do I fund my business? What business can I now create, that I couldn’t before? And now, commonly how do I protect my business?
Where am I going with all this? I’m not even sure yet, but…
Here’s a chart from Zerohedge on Amazon’s Net Income (the full article is here):
Here’s a chart on Apple’s Net Income (source aaplinvestors.net)
Apple has in its genetic make up the obligation to protect and create proprietary platforms which competitors can’t breach. As long as they innovate and protect their inventions, manufacture as cheaply as possible, and aggressively attack perceived competition, they will continue to be wildly profitable. Pure feast or famine, and as competitors catch up they’d better come up with the next big thing. A 20 year cycle? The Mac was brilliant and floated Apple’s boat (barely) until the iPhone. Steve Jobs was there for both. The iPhone, iPad, and the proprietary Apple store platform have a few good years ahead of them. But remember The Newton, Next? There will inevitably be a period where they lack direction (like the last). So Apple locks up tons of cash to weather the next Newton. That sounds fair; even smart.
Amazon on the other hand competes on price. It’s fundamental business is distribution. It innovates arround and within the confines of tight margin and pure distribution, even AWS and cloud services are a form of distribution. Before Amazon became an online Walmart it put hundreds of small booksellers out of business. (You can mark that down as part of it’s learning curve.) Now it’s business, also relatively simple, counts on doing distribution better and cheaper than anyone, anywhere, in any business. So your friendly neighborhood bookseller, if he’s still in business, distributes used books through Amazon. Keeping them in business, lets amazon profit from distribution for product it would never otherwise be able to put its hands on. This is true not just for books but for any product. The only problem with a normalized distribution platform is that your local bookseller has to compete with sellers across the world and his sole real differentiating factor is price. Hey, thanks Amazon. Ultimately this even puts Amazon at odds with Apple (or anyone in the distribution business) for everything Apple pushes through its proprietary store; music, books, movies. Amazon will fight for its percentage, and it will do so with price. Very few players can avoid this gatekeeper.
Google is also in the distribution business, but they want something a little different, just one thing. They want to sell businesses the right to tell you what to buy. Their strategy is also simple: do everything necessary to make sure you go to Google, first and often. Facebook, well, they have your friends and what’s better than word-of-mouth? FB is probably a more precarious gatekeeper, time will tell.
So on this fancy playground where Apple has your gadgets locked up, Google tells you what you want, Facebook confirms that whatever you’re buying is likable, and Amazon gets it to your door; what’s left? Could you create a business without paying one or all of these playground gatekeepers? Unlikely.
What interests me though, are tomorrows businesses. I wonder about that vision, that dream of creating a business in a garage and opening up new markets thanks to the global reach of the internet, has that promise been fulfilled? By normalizing the advertising, social and distribution platforms, true price discovery is occurring every minute of every day – unlike our commodity markets – which strikes me as terribly ironic. So entrepreneurs now have to ask another question: how much will I have to pay Amazon, Facebook and Google for my business to be a success? Might these players be the Morgans and Goldmans of the future?
It’s a strange world we live in.