Tech inDIGESTion #003

A Fresh Look at What’sHappening in the High-Tech

and Social Media World

by Patricio O’Gorman | @patoguru

# 003 | March 2011

Giants is a very strong word. The

largest technology companies have fought – sometimes publicly and sometimes silently- for leadership of the competitive arena. Many have risen and fallen in the pastdecade, due to market conditions or internal management mistakes. However it maybe, this short note tried to shed some light on the level of vertical integration of a shortlist of market leaders. Some might not “per se” be considered tech companies, but ifthey are in the list, it is because their competitive behavior is similar to tech.

The main thesis behind this analysis is that there is a correlation betweendegree of vertical integration and success in high-tech markets. By vertical integration,what is understood is that the company owns stakes in one or more layers:

1 | Hardware

2 | Operating System

3 | Applications

4 | e-Commerce Portal

5 | Connectivity

6 | Contents

Therefore, we must understand whether participating in one or more layers, orclusters of layers, is beneficial to business results. Layer 1 is closer to the corporatewalls of companies, while Layer 6 is close to media consumers. The idea of joining the“pipes” and “content” come from many years ago, but were emphasized during the dot-com boom when the term convergence was coined and for 2 years or so vastly overused.

The logic behind convergence is simple: by owning both contents and means ofdistributing them, you don’t have to pay anyone to deliver the contents and thereforeyou appropriate a larger chunk of the value chain. The merger between AOL andTimeWarner was the largest attempt at achieving convergence, by combining one of thelargest music, TV, magazine and movie libraries in the world (TW) with the world’sleading portal in 1999 (AOL). However, the market forces which generated theconditions for than merger (and Vivendi-Universal, for that matter) quickly disappearedand left everyone wondering whether convergence really did have advantages for boththe corporate world and the consumers. Ten years later, the same question is beingasked again. Like the French say, plus ca change …

Technology InDIGESTion @patoguru #003 | March 2011

CONTENTS / MEDIA

CONNECTI-VITY /

MOBILE

E-COMMERCE

PORTAL

APPLI-CATIONS

OPERATING SYSTEM

HARDWARE


SOURCESCompany Financial Statements and Web Pages.

LAYERS IN COMPUTER INDUSTRY

No capabilities.

Insufficient capabilities.

Adequate capabilities.

Sufficient capabilities.

Strong capabilities.

BACK-END (INTEGRATION) FRONT-END (CUSTOMER CONACT)


INTEGRATED OFFERING

FRAGMENTED OFFERING

CORPORATE FOCUSED

CUSTOMER FOCUSED

.

As the matrix above shows, based on the analysis carried out on these “techgiants”, it appears are quite good at preparing their internal go-to-marketofferings (be it integrated or fragmented), but when they do so they are still farfrom the customer. The distance from the customer is based on the low scoreson the portal/connectivity/content quadrants from page 3. Sony, Amazon andApple lead in customer focus, while Apple and Microsoft lead in IntegratedOfferings. Overall leader, as per this analysis, is Apple’s portfolio and go-to-market strategy.

Technology InDIGESTion @patoguru #001 | January 2011

Some time ago, competition was much

easier than it is today. Although the companies in this competitive group are allconsidered successful, to reflect that success was not the intent of this study. Rather,we tried to analyze some reasons behind it and understand better investment optionsfor these companies. Quite clearly, content is one of the large lacking factors (exceptfor Sony) and connectivity/mobility are almost non-existent, thus forcing thecompanies to rely on an ecommerce portal strategy alone.

These giants rely on the quality of their products – be they hardware, operatingsystems or applications – and not the degree of relationship or intimacy with theconsumer. In this new era of social media where lots of conversations are going onsimultaneously, you would expect that, sooner or later, the consumer dimension mightcome into play. As social media continues to grow, these companies will have to take astand regarding the possibility of an end-to-end solution. Apple currently does it withits iTunes store, but offering third party content. Amazon has the largest storefront inthe world but does not generate its own content. It is currently under debate whethersearch engines like Google actually do generate content (i.e., are search resultscontent), but the gaps in the consumer focused strategy are evident in all thesecompanies.

A surprising service which is not offered by competitors is internet access. Astechnologies evolve and different services spring up (WiMax), this is expected tochange and a whole new debate about net neutrality might then begin.

Until then, our technology giants appear dwarfed in the eyes of the consumer …

I look forward to hearing your comments at [email protected] andcontinue this conversation; or, we can also pick up via twitter @patoguru. Meanwhile, Ihope this has helped you partially digest this wonderful world of technology or, at least,given you some food for thought.


Next Issue: A look at Smartphones & Tablets | Are they PC dependent?

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Tech inDIGESTion #003

Business

Transcript of Tech inDIGESTion #003