The Internet’s Adolescence: The Real World Catches Up Eventually

I started my career as an internet analyst back in the period of the dot-com bubble. They were heady days in which anything seemed possible. The world was changing in unprecedented ways and the possibilities were endless. The rules that governed the old world didn’t apply. Except they did. Investors soon twigged that dot-com startups were simply not able to deliver on their revenue promises and so pulled their funding. In an instant, the whole edifice came tumbling down. It turned out that those old fashioned and outdated concepts such as turning a profit actually applied to internet companies too. We have come a long way since the dot-com bubble, but it would be wrong to think of the internet as being a mature medium yet. Instead, it is entering its market adolescence and consequently still has a lot of growing up to do.

Regulation Comes Eventually

Although the internet and its associated technologies (apps, social, streaming, e-commerce, etc) are deeply embedded in our daily lives in the developed world (and increasingly so in emerging markets), it is still fundamentally just getting going. On a global level, each key sector of the internet economy is dominated by 1 company (Amazon/e-commerce, Google/search, Facebook/social, etc). A single dominant company is typically an indication of an early stage market and/or one that is about to be opened up with regulation. In the case of internet industries, it is likely to be a combination of both. Thus far, regulation has not yet properly caught up with internet companies. The global, borderless nature of their propositions and their relative lack of precedents makes regulation a highly challenging task. But it will happen.

Regulatory Repercussions

To be clear, regulation is not some shining panacea for business. But it is the price of being part of society and global commerce. The more deeply integrated into civic society that internet companies become, the stronger the likelihood for them to become regulated. And when regulation happens, the effects can be devastating for companies that have previously operated with free reign. When the European Commission, under lobbying pressure from Real Networks, compelled Microsoft to unbundle the Windows Media Player (then by far the most popular music player) from Windows in 2004, it was the trigger for a long period of decline for Microsoft, from which it is only just beginning to recover. Clearly, there were other market factors that contributed to its decline, but regulation was the tipping point. And the model of a competitor (Real Networks) shamelessly using regulation to give it a competitive edge over an established rival could reoccur. For example, any number of big Chinese companies looking to extend their reach to the west may view EU regulators as an opportunity to prize open the market for them.

The Pendulum Swing Of Disruption

When a new technology disrupts a traditional incumbent, it normally does so by being 3 things to the end user:

  1. Cheaper/free
  2. Quicker
  3. More convenient

Napster, YouTube, Amazon, Uber, Netflix, all of these companies have done exactly this. Because they most often build market share and presence using external funding, such companies turn existing economics upside down with loss leading tactics. The result is that audiences switch in their millions and incumbents are left in tatters. Any old business that relies on scarcity economics will be swept away.

Take Uber’s impact on taxi drivers across the world. In the UK, a black cab driver will spend 5 years riding around every street in London on a scooter, memorising every street before taking a $60,000 loan on a black cab. 8 or 9 years into the venture, a black cabbie might be in the money. In the days of Google Maps and Uber, those principles go out of the window. Uber has had such an impact in London, that the cab rank queues at train stations can be miles long because black cabs have so little street side business left. In New York, yellow taxi medallions (the city’s government certification for official taxis), once traded as high as $1.3 million each in secondary markets, but have dropped to $240,000 now that Uber and Lyft have ensured that you no longer need a medallion to operate as a taxi in New York.

This is the pendulum swing of disruption. But pendulums eventually swing back. That is when regulations, real world economics and new business model innovation come into play. The original market disruptors often either disappear or get bought. The recorded music industry is now finally building a new set of effective businesses around the disruption brought by Napster, which died as an entity before the millennium really got going. YouTube transformed video and was bought by Google, Skype cannibalized mobile carriers and was ultimately bought by Microsoft, Linkedin disrupted recruitment advertising and was also bought by Microsoft, PayPal disrupted credit card companies and was bought by eBay.

All Of This Has Happened Before And Will Happen Again

Today’s internet giants may have the appearance of being permanent features of the digital landscape, but they’re not. AOL, Yahoo, Netscape or MySpace looked immortal in their days, as the GAAF (Google, Apple, Amazon, Facebook) do now. That doesn’t mean these companies cannot become long serving global superpowers. But history has a habit of repeating itself. Or as the fictional mythical Sacred Scrolls of Battlestar Galactica said: “All of this has happened before and will happen again.”

Never mistake normality for permanence.

 

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MIDiA Research Predictions 2017: The Year Of The Platform

MRP1611-coverFollowing an 84% success rate for our 2016 Predictions report, we today launch our 2017 predictions report: ‘MIDiA Research Predictions 2017: The Year Of The Platform’. The report is immediately available to all MIDiA subscription clients and can also be purchased for individual download from our report store here.

Here are some highlights:

2016 was the year that video ate the world. 2017 will be the year of the platform, the year in which the tech majors will fight for pre-eminence in the digital economy, competing for consumer attention through formatting and distribution wars. Companies that are already using mobile Operating Systems to achieve global reach will take the next step, creating Mobile Life Ecosystems that both break out of the app silo walls and straddle them. Facebook, Amazon, Tencent, Microsoft, Apple and Google/Alphabet will be the main players. 2015 was about parking tanks on each other’s front lawns, in 2016 shots were fired, 2017 will be all-out war. Artificial Intelligence (AI) and voice assistance will be key battlegrounds and indeed will form the glue of Mobile Life Ecosystems.

Some of MIDiA’s other key predictions for 2017 are:

  • Services are the new black: Maturing ‘phone and tablet markets mean that hardware companies will place a greater focus on digital content and services in 2017. Services are an opportunity to drive strong growth that will compensate for slowing device sales
  • Ad market growing pains: Digital advertising inventory supply will exceed demand in 2017. Audience engagement will grow more quickly than advertisers’ appetite. Consequently, ad rates will decline with the bloating of the market by content farms accentuating the problem. Facebook will not be alone in seeing slowing ad revenues in 2017.
  • A tech major will be hit with the first stage of an anti-trust suit: The incoming US Presidency has made its anti-trust inclinations clear. A likely early target will be the AT&T/Time Warner merger. The global-scale tech companies may be mature companies but their respective sectors are not. Regulation is one of the inevitable growing pains of maturing business sectors. Digital is next.
  • Snapchat’s IPO will be digital’s canary in the mine: App store era unicorns and their attendant Initial Public Offerings (IPOs) will redefine the media and tech landscape. Not only will the success, or failure, of Snapchat’s IPO affect those of Uber and Spotify, poor showings could deflate the VC bubble andput an end to the grow-at-all-costs For the music industry, the stakes are even higher, as an under-achieving Spotify IPO would create a crisis in confidence in the entire streaming market.

Among our music predictions for 2017 are Spotify’s IPO and the subsequent start of a new generation of experiential streaming services, Tidal selling (probably to Apple) while Spotify closes out the year with around 55 million subscribers to Apple Music’s 30 million.