A new book urges us to think about the online business world as a “solar system” of huge dominant firms, each surrounded by a crowd of satellites.
“The giant companies of the digital age are not like other corporates,” says Paul McCarthy in his book Online Gravity. “It makes more sense to not think about them as companies at all. They are more like the big planets of the solar system, which generate their own gravitational field, strong enough to become self-perpetuating as they draw more into themselves.”
He notes that each part of the digital universe is now dominated by a single firm structured as a network: Google for search, Amazon for retail, Facebook for social media, and so on. There are no duopolies, such as Coke and Pepsi, and no clusters of heavyweights, such as in the auto industry. There are other companies in the digital field but they tend to be niche players or based on a specific local advantage, such as language.
“Digital giants, once they reach critical mass and pass the adolescence phase, are largely unassailable in their ‘space’,” McCarthy told INTHEBLACK. “Microsoft products, for example, still run on over 90 per cent of desktops in the world, despite its main rival becoming the largest company in the world. What happens, however, is that the space becomes less interesting – and profitable. So Apple shifted focus to mobile computing platforms with smartphones and tablets and now owns this ‘planet’.”
The nature of a network is that the more participants, the greater the value of the network to each participant – so small gains become leveraged into big advantages. As the company moves into the global field, with more people in emerging countries being connected to the internet, those advantages are again multiplied. The former challengers are either taken over, go under or settle for a niche.
“Another point is that the larger you get, the more data you can collect – on customers, on competitors, on the market in general. Data is gold in the digital age, and information storage costs are going down.”
Timing is also crucial. Most of the companies that are now giants were slow to show a profit. Instead, they concentrated on market share and technological innovation. This required the backing of “patient” venture capital as well as a supply of talented people. These were most often found in the US, says McCarthy, which is why most of the giants are American.
The same pattern was seen in China’s Alibaba, however, which is now a mature giant with its own satellites. A turning point was when Alibaba’s consumer portal, Taobao (see page 34), saw off eBay’s attempt to enter the Chinese market.
“A global outlook means that the giants can readily move into new markets but can also recruit good people from wherever they are,” McCarthy explains, “but they have learned that people focused solely on good technological skills might not be the right people.
“They are more like the big planets of the solar system, which generate their own gravitational field.”
“The emphasis is now on people with a mix of skills and interests – renaissance talent, or ‘slashies’. They look for people who have shown a capacity for innovation, people who can see where the next wave of challenges is going to come from and how it can be met.”
People also want jobs that are stimulating and rewarding, and they want to work for a company they like and respect. McCarthy points to the emergence of companies that assess companies on behalf of possible employees. Glassdoor, for example, has reviews on more than 4500 companies, traditional and digital. For managers, this level of transparency means they must continually improve what they do, while ensuring their corporate reputation stays untarnished.
While each giant dominates its own sector, McCarthy does not believe this stifles competition. In fact, as the digital economy grows, there continue to be opportunities for newcomers.Education and healthcare are areas ready for digital revolution, he says. The growth of digital currencies is also likely to accelerate the process.
McCarthy sees online currency as a sector still in its infancy, with more than a hundred different types of crypto-currencies. He notes that some market watchers believe that Bitcoin will continue as the leader as the sector matures, while others are more cautious.
“What it shows is that new space is continually being created,” he says. “We are seeing huge numbers of start-ups by groups of people with diverse, complementary skills. The giants do not have a monopoly on great ideas. If you have a net connection, you can be a part of it.”
Paul McCarthy is an adjunct professor at the School of Computer Science and Engineering, University of New South Wales, and co-founder of academic recruitment search firm MBA Analytics.
This article is from the October issue of INTHEBLACK