“We’re in a tech bubble,” said Professor Michael Wade when explaining how big technological companies have discovered how to “get” the world’s Internet users to maximise profit.
Here’s the catch — “Beware, they’re coming to get you.” By you, it means the information technology giants are on course to own a lot of things, if not everything.
Wade was explaining the strengths and weaknesses of the business models of Internet giants and the ultimate effects on society worldwide at IMD’s Orchestrating Winning Performance (OWP) programme recently in Singapore.
Among the most successful tech companies are Google, Facebook, LinkedIn, Alibaba, Amazon and Tencent.
Judging by stock market performance, Amazon scored the highest gains with 100 per cent for the period 2014 until October this year, while the most losses was suffered by Alibaba with a minus 40 per cent.
Google, for the moment, has a system that works like a charm. In fact, what’s interesting is the company that profits from advertisers has also been on other websites.
Ever heard of how your brand can be at the top of the screen on the Google web?
A company can be on the top if the keywords used for the ads are deemed relevant and have quality with Google having an algorithm for the purpose of charging clients who put their ads on their website.
“They have never revealed the algorithm but from what’s been talked about, we know it’s about a quality score,” said Wade.
This is also called Adwords. There is another term in which Google gains revenue, which is called Adsense, where the company advertises on another company’s website.
All in all, Adwords and Adsense have helped Google immensely whenever, wherever and whoever’s clicking. Adwords contributed 68 per cent of its revenue and Adsense, 22 per cent, while the rest are from other products like Android and Google Play.
For Facebook, with a billion plus users, 90 per cent of its revenue is from advertisements, with the rest coming from games and fees.
However, Facebook is facing a problem with teenagers — many of whom have entered the adult phase of their lives — who don’t appreciate ads on the right side of the screen, which is normally the space we look at. To counter that, Google has changed tactics to using apps that users like to see.
Facebook then purchased WhatsApp for US$19 billion (RM82.3 billion) and Oculus, a 3-D virtual reality goggles, to arrest declining usage.
Then, there’s LinkedIn, which survives by giving access to users’ profiles to companies for a fee, apart from getting revenue from advertisers. Wade also described LinkedIn as somewhat similar to Facebook in design and layout.
It is Amazon, however, that caught the eye as the company that started just by selling books has continuously changed its approach, and now sells just about anything, including the Kindle, an e-book device that it produces.
Amazon has also expanded by acquiring The Washington Post and Twitch, a live streaming platform to watch “somebody play video games”.
Amazon may want to become like Apple, but so far, the company has been very efficient, which has allowed it to rake in US$80 billion.
Not to be outdone is Alibaba with an 80 per cent retail market dominance in China.
Among its forte is the ability to connect foreign businesses to locals. It also has creativity on its side by introducing “Singles Day” apart from going public with IPO at the New York Stock Exchange.
Wade, however, predicts that Alibaba will buy a big company to rejuvenate its business after suffering a major drop in share value in over 10 months, costing it US$141 billion.
Another up and coming company is Tencent, which provides Internet and mobile phone value added services, more recognisable with penguins whose market value exceeded US$200 billion for the first time.
Tencent has a social presence through WeChat with 450 million users outside China.
It further strengthened its standing with a red envelope promotion on the eve of Chinese New Year celebrations this year.
According to reports, users were invited to shake their smartphones to win 1.2 billion red envelopes worth US$83 million and the frequency of the shakes reached 810 million per minute.
There you go. The tech giants are willing to spend money and can afford to lose money. This spending or investing should be seen as a threat to everybody, including the media.
“Look at Facebook. It is now a media company. But, it’s not producing content,” said Wade.
Media companies, however, are still relevant if they can produce not only “knowledge but insight”, he said.
The biggest factor favouring big IT companies is still about fulfilling customer and user needs. Think about the slogan “the customer is always right”.
Amazon and the other tech giants have that in mind while changing and adapting to the needs accordingly, even if it means they have to buy other companies and buy big.
However, declining users is one of the signs that might mean a tech correction is coming and next year may be the earliest time that we will see the tech bubble burst. Owning a lot of things or even everything does have its downside, too.
The writer is BH features/op-ed editor