For several years a small group of very large tech companies have become the most valuable businesses on the planet.
But whilst they have not only amassed huge fortunes through developing business models that can dominate the markets they have helped create, they are also affecting the wider environment.
Such is the effect on society that various initiatives in the US and the EU aimed at reining in their power are gaining momentum. But what effect is their dominance having on the wider business world?
Jeremy Ghez, an affiliate professor of economics and international affairs at business school HEC Paris, says the Silicon Valley motto ‘Move Fast and Break Things’ may very well be becoming the philosophy of an increasing set of sectors. “In particular that’s because technology is affecting a wide range of sectors,” says Prof Ghez.
He says: “Think about how significant platforms have become. As ownership may quickly become a reality of the past, firms that sold physical products must consider offering a wider range of alternatives to consumers — mobility solutions being a case in point.
“Or the growing role of software: connected products offer so many opportunities for firms to differentiate and reduce competition that they must harness think in terms of connectivity of what they sell to broader ecosystems.
“There are many examples illustrating this phenomenon as well, take connected watches that collect information about you and your movements that any smartphone app can now analyse,” says Prof Ghez, whose research focuses on the US, tech giants and populism.
Prof Ghez, who is the scientific director of the Sustainable and Social Innovation (SASI) Master’s program at HEC, says key is the consensus revolving around the idea that there are many industries that are ripe for disruption.
He says the automobile industry is perhaps a telling example. “For quite some time, a car has been defined by the very same elements, namely a set of wheels and a steering wheel.
“We know that the driverless car will transform this industry, in a way traditional actors may not be able to follow, if they do not move fast and leave yesterday’s practices at the door,” he adds.
Eric K. Clemons, a professor at the Wharton School of the University of Pennsylvania, says it would be a mistake to assume that companies are changing the landscape just because they are big. “It is clear that Amazon Web Services, and the Cloud offerings from Google and Microsoft are seen as competing with each other. European executives are not overly concerned about their size because they can be played off against each other,” he suggests.
Prof Clemons says what frightens European executives is their almost total loss of control over any applications that directly face or interact with customers. He says Mercedes and BMW’s plans for smart cars and autonomous vehicles are going to rely either on an Android interface or an iOS interface.
“Users don’t want to have an additional interface to learn, and smart vehicles are going to be able to access their owners’ schedules, address book, calendars, etc., from their owners’ smart devices.
“That means that if I want my cars to coordinate and pick up my family members and deliver them to a dinner party my cars, and hence my cars’ manufacturers, will be totally dependent upon smart phone companies in order to interact with their own customers,” he adds.
“Likewise, users’ home appliances are going to interact through Alexa, Google Assistant, or possibly Siri; again, users are not going to want to learn a new interface. That means my smart fridge is going to report back to its manufacturer through another company, placing an intermediary between the manufacturer and its customers.
“It means that my smart fridge is going to do its automatic reordering through Amazon if I am an Alexa user and buy from Whole Foods, or that it is going to order through Google and order from who ever paid to be on top of the supplier list. This scares European appliance manufacturers. It should terrify European retailers,” says Prof Clemons.
Increasingly, companies are realizing that they cannot compete with a platform envelopment strategy and that they cannot develop an effective platform envelopment strategy of their own, he says.
“Consumers don’t want to use BoschNet or BMWNet or FordNet or AmanaNet. Consumers are going to use one of the dominant platforms, and every other company will need to find a way to make some sort of agreement with them,” says Prof Clemons.
Prof Ghez goes further. He says Amazon’s power is that it not only a platform, it is a connected firm and it is transforming the business environment in a way other sectors, well beyond retail, cannot ignore.
It is not realistic for a lot of these sectors to consider developing their own platform in order to circumvent Amazon’s influence, because they need that influence in order to reach new customers, he says.
“Many big firms rely on Amazon’s cloud services in order to offer connected solutions, and yet they know that Amazon may become a rival in the not-so-distant future.
“Amazon seems present in all of the sectors that matter in this great transformation. For other businesses, the challenge lies in deciding where Jeff Bezos can be an ally and where it stands as a definite foe,” he adds.
A popular saying goes, the US innovates, China adjusts and replicates and Europeans regulate. “The saying arguably sums up the previous decade in tech. And what is striking is that when the EU regulates, it does so in a very different way than the US,” says Prof Ghez.
“Europeans seem to have given up on breaking these giants into smaller pieces; instead, they look to make these companies bear a chunk of the cost that their dominance entails for the market as a whole.
“It is in this light that one can understand the EU’s record fines against Google over the past couple of years. This is likely to be a reality tomorrow as well, and a reality so long as the European ecosystem is not able to produce competitors of these tech giants,” he says.
Prof Ghez says the only way Europeans can really regulate this industry is by reining in its most powerful actors in the name of “correcting” their abuses. This will not undercut tech’s influence but may curtail it in the near term,” he says.
At the moment, Big Tech is not under significant threat, says Wharton’s Prof Clemons. Many activities that may ultimately be seen as monopoly practices do not fall neatly into existing antimonopoly frameworks, allowing the platform operators to continue to practice them, he says.
“Additionally, much of the revenue from platform operators originally came from privacy violations and monetizing of personal information; stricter enforcement of privacy laws in Europe could create an opportunity for giant firms to emerge, subsidized by activities that would have been illegal for many of their competitors,” he adds.