Linked by Thom Holwerda on Wed 19th Dec 2012 21:23 UTC
Talk, Rumors, X Versus Y Derek Powazek exposes the meaninglessness of the already overused tripe 'If you're not paying for the product, you are the product'. "But we should not assume that, just because we pay a company they'll treat us better, or that if we're not paying that the company is allowed to treat us like shit. Reality is just more complicated than that. What matters is how companies demonstrate their respect for their customers. We should hold their feet to the fire when they demonstrate a lack of respect. And we should all stop saying, 'if you're not paying for the product, you are the product', because it doesn't really mean anything, it excuses the behavior of bad companies, and it makes you sound kind of like a stoner looking at their hand for the first time." Nailed it.
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Trying to make sense of it all
by Tony Swash on Thu 20th Dec 2012 11:56 UTC
Tony Swash
Member since:

Why does this issue matter? It matters because what one is seeking (at least I am ) is an understanding of the dynamics that drive the tech markets and the giant tech companies that dominate them. A critical key to understanding any of the big tech players is understanding the core dynamics of their different businesses models which in turn drive their strategies and behaviours. The businesses model of company is that which governs the way the company makes money, earns revenues, and generates profits. What does it sell and too whom and how? Where do the bulk of it's revenues and profits come from?

In the case of Apple their core business is selling devices, it's where Apple makes the vast majority of it's revenues and profits, and everything Apple does can be seen as a way of driving those device sales. It's strategy for selling devices is to create a small range of distinctive, high value added, well made, well designed and easy to use devices with a high degree of interoperability and all tied to a very deep and bespoke value stack (a global retail network, good customer support, a digital content store, digital creations tools, business tools etc). The aim is to innovate product iterations fast and sell at a premium profit but to a mass market and which entice hundreds of millions of people to 'join Apple's club'. In order to achieve all this Apple aims to control as much of the elements that make up it's customers experience of it's products as possible, from the silicon to the retail experience.

In the case of Google their core business is selling targeted advertising, advertising that can be tailored to both the tastes and interests of the specific individual viewing them as well as the context and location of the viewing. It's strategy for selling advertising is to gather the most complete and best data about the targets of advertising right down to specific knowledge about hundreds of millions of individuals (what they correspond about in their emails, what videos they watch, what they search for on the internet, where they are going and what they doing when they get there). Google then compliments this data with very easy and attractive mechanisms for the hosting and buying of advertising. Google's aim is to secure the data it requires for it's products by creating and offering for free numerous free and attractive software and services that entice people to voluntarily let Google watch what they do and to collect and store that information.

In the case of Microsoft their core business is selling software licences, primarily to other enterprises including OEMs and to a much lesser extent to individuals. Microsoft managed very early on in the PC era (even before Windows) to achieve a very large footprint in the PC operating system market and then used that position to develop a series of interlocking software products that became standards for the PC industry and which allowed Microsoft to sell hundreds of millions of software licences and to charge a high price for each one. Given that business model Microsoft naturally had no interest in the spread of new computing standards that it did not control.

From all this I would draw the following obvious conclusions.

Apple will be very sensitive to anything that threatens or encroaches on it's control of it's products stacks and on it's distinctive product designs. Apple is not good at sharing.

Google will always prefer everyone to share all their data, especially with Google, and will always see any data it cannot access as a problem. Google is not good at privacy.

Microsoft will always want to sell software at a high price and to control software markets. Microsoft is not good at competing in markets it does not control or at respecting standards it does not control.

Reply Score: 3

Alfman Member since:

Tony Swash,

That's a pretty good assessment of all three cases. To add to that, all of them will need to evolve.

There might be a point at which apple determines that it needs to focus on squeezing more profits out of services than devices. Tablets and smart phones are very likely to become commodities like desktop computers did.

Google services sold directly to end users have been met with limited success, but if their advertising model were seriously threatened they'd have to make better attempts at getting into more direct end user transactions.

Microsoft still has lots of lock in advantages of course, but that's becoming much less effective as everyday users and businesses rely on more web based services.

While all three companies will probably be recognisable in a decade's time, I doubt any of them will be able to stand still.

Reply Parent Score: 3

Tony Swash Member since:

The mobile device revolution is now well under way, at some point soon there will be more than a billion Android and iOS devices being used and Android will sometime this year pass the installed base of Windows, and so we can I think begin to see some patterns emerging which will probably shape the fortunes and fates of the big tech players.

This is what I can see:

Services, advertising and software are not a big revenue generator in the mobile space. The most successful app store, Apple's, has paid only about $7 billion dollars in revenue to developers in the four years of it's existence, Android apps have paid a fraction of that. Non-app sales (digital content such as music, films, TV etc) do not seem to generate any significant profits, less even than apps do.

Advertising revenue is also very low on mobile devices compared to desktop PCs. Google made around $2.5 billion on ads in the US in the last year and only about $315 came from mobile and over half of that came from iOS so that means total Google earnings from mobile ads runs to only about 6% of it's total revenues. And that's in a market where smart phones have already reached 50% of the market. It's looks like the best Google can manage in any market, assuming optimum conditions of 100% smart phone penetration, is around 13% of the revenues it earns from the traditional desktop/browser.

Microsoft has, so far, gained zero advantage in the mobile markets from it's dominance on the desktop. It has almost zero presence in phones or tablets. Windows 8 and Surface could change that but there is no evidence it is and the mobile software market, which is now the dominant software market, has led to a very big reduction in the price (and hence the margins) of software.

In general almost nobody is actually making any substantial profits in the new mobile device markets, which is very surprising given it's size and growth rates.

The only two companies making any substantial profits are Samsung and Apple with the latter substantially out performing the former in terms of commercial performance.

Both are making those profits selling hardware.

All the above could change but there is not evidence of any change happening so far.

Reply Parent Score: 2