As of the second quarter of 2018, 7 out of the 10 most valuable companies were technology companies (Apple, Amazon, Google, Microsoft, Facebook, Tencent and Alibaba). If you’ve been following the stock market and the evolution of these companies, this is no surprise. You might even have heard that, in the coming years, the 50 most valuable companies will be technology companies. I would like to make an even clearer statement: in the short to medium term, all successful companies will be technology companies, but not necessarily in the sense of how we define technology companies today. Let me explain.
Apple and Microsoft, respectively the 1st and the 4th most valuable companies in the world as of today, are technology companies in the traditional sense: they develop technology products and solutions for non technology companies. Like IBM, SAP or Salesforce, they’re technology enablers.
Amazon, Google, Facebook blur the lines but, they’re essentially companies addressing a traditional market (retail, advertising) by using technology as a competitive leverage. Most of us call them technology companies because they also act as technology enablers (like Amazon with AWS), but they essentially are companies addressing a traditional market using software and data. I’d like to call them technology-enabled companies.
Netflix, Uber, AirBnB and Tesla also fall in the category of tech-enabled companies. All of them use a blend of market and proprietary software, infrastructure and data to address their market (video production, transportation, hospitality, car manufacturing). But, unlike Google or Amazon, none of these companies are selling their technological products to others and keep them for themselves as competitive leverage.
Looking back, the first wave of technology companies were technology enablers and the second wave of companies were a mix between enablers and enabled. The third wave, the one that just started, will be tech-enabled companies only. I even strongly believe that technology enablers will see their power substantially diminish in the coming years.
How could companies like Apple, Microsoft or SAP, with billions in the bank and hundreds of thousands of smart people working for them could start to fall down? I believe that 3 forces, that have started today, will be responsible for that fall.
1/ It’s easier and cheaper than ever to build and market extremely reliable software, and it will continue this way. In the early days of software, building quality programs was extremely expensive and it was nearly impossible for startups to make products without venture capital. Thanks to the democratisation of open source software, high level programming languages and cloud infrastructure, two kids with laptops can now make high quality software. On the distribution side, it’s still a bit complicated to reach high volumes globally if you’re not a big company. But again, the acceptance of SaaS as the main software model and new channels (like app stores or ProductHunt) are helping lower the cost of distribution.
2/ Infrastructure (especially storage and processing power) will move from 3rd parties (AWS, Microsoft, Google) to decentralised organisation based on Blockchain. Data centres are the backbone of the Internet. Websites and applications are stored on servers, themselves located in data centres that have grown exponentially over the past years. If we continue this way, the data center market will continue to grow and some even predict that data centres will consume 1/5 of Earth’s power by 2025. But the dynamics are changing. A blockchain based infrastructure with sufficient scale will be significantly more efficient and less expensive than a 3rd party. And we can already see blockchain-based distributed storage (storj.io) and distributed computing solutions (iExec) available. With the pace of innovation, it’s only a matter of time when these solutions, run by decentralised organisations, are better and cheaper than any solutions run by a 3rd party like Microsoft or AWS.
3/ Apart from outside software and infrastructure, the remaining technology that will be used by companies will be proprietary software and adaptation of public algorithms. Do you know how Uber manages its monthly 40 million rides? With software and data processing, for sure, but more specifically, with proprietary software and data processing. When technology becomes an unfair advantage in a specific market, it becomes paramount to make sure your competitors don’t end up with the same advantages. That is why I’m betting that, when it will come to core business or unfair advantages, successful companies will build and maintain their own software and data processing solutions.
Of course, you can disagree with my assumptions above (you can use the comment section or interact with me on LikedIn and Twitter). But if you agree, it is now the time to act. If you’re in a traditional market, don’t go into the same “digital transformation” as any other company in your sector but be bold and invest in your own solutions (when it makes sense). If you’re starting a technology company, ask yourself if you shouldn’t use your solution for yourself (like quantitative hedge funds who keep their algorithms for themselves). And if you’re into infrastructure, what is your Blockchain play?
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