Previously on Dr Wealth…I listed 10 present-day monopolies and showed how powerful they are in dominating their respective markets.
It wasn’t surprising that majority are tech companies as they have managed to provide goods and services that we now use in our daily lives. Therein lies their importance and it is reflected in their share prices too.
Monopolies always get a bad rep because governments are afraid that these companies would become more powerful than themselves while consumers fear being helpless against predatory prices set by monopolies.
In the book, Modern Monopolies, Alex Moazed and Nicholas L. Johnson argued that monopolies are no longer as everlasting as before,
…modern monopolies aren’t likely to last nearly as long as their predecessors. Barriers to entry in most industries are far lower than they were a century ago, while the boundaries between industries also are much more fluid than they have been in the past. Although networks today do create the strongest and most defensible moats, they don’t create the same barriers to entry as past monopolies that required vast investment in physical infrastructure in order to succeed.
Basically, they are saying that we live in the age of disruption where technological advancement happens at a fast speed. Today’s incumbents or monopolies can have their power taken away by another startup, if the new entrant can provide a service that is cheaper, faster or better to the market.
To prove their point, the authors said that (in 2015)
“Sixty years ago, the average life span of a company in the S&P 500 was over fifty years. Today it’s less than fifteen.”
That means that big companies are no longer safe and they need to constantly innovate and beat the curse of a huge bureaucratic organization that slows progress, or they need to simply acquire potential threats – like Facebook buying WhatsApp and Instagram, or Google acquiring YouTube.
But the immediate threat I see is that Big Tech are fighting against one another and it is looking like a Game of Thrones series. For example, although Apple is known for its iPhones, Amazon in ecommerce, Alphabet in search, Facebook in social media and Microsoft in PC softwares, they are now competing outside their core competencies and encroaching into the turfs of other Big Techs.
Here’s the irony – today’s monopolies actually face intense competition from one another!
This makes investing a lot tougher – Buffett probably avoided tech partly because its moat isn’t as lasting as Coca-Cola. This also means that you have to be nimble with your Big Tech investments as they may not last as long as you think.
Let’s look at a list of the competing products and services among the Big Tech.
Smartphones – iPhone vs Pixel
Steve Jobs changed the course of the world when he first introduced the iPhone in 2007. It was Apple that led the mobile computing revolution and the rest of the world followed.
At one point, Facebook and Google were trying to catch up on mobile and luckily they have adapted. Apple remains a leading smartphone brand today. But many competitors have gained market share over the last decade.
Today, Apple dominates the market in terms of revenue and profits from selling smartphones because of its premium branding and pricing. But in terms of units shipped, Samsung and Huawei are ahead.
Google on the other hand dominates the mobile OS with Android. It came late to the hardware game, launching its Pixel series in 2016. It now has less than 3% market share in the global smartphone shipments while Apple accounted for 14% as of 2Q2020.
But at least Google Pixel managed to survive for 4 years and going (I am using a Pixel by the way).
Facebook launched its first phone with HTC First and it flopped immediately.
Amazon was none the better. It follow suit to launch the Fire phone in 2014. It flopped too.
So it doesn’t mean that anyone with loads of money and a big audience can succeed in a smartphone business.
The second point is that big tech are competitive. They want to eat one another’s lunch.
They could be doing so to protect their power. Apple with its vertically integrated hardware-software can mean that other big tech is at its mercy. For example, Apple in iOS 14 would give the user the power to decide if they want to be tracked by advertisers – this is clearly to rein in the advertising powers of Google and Facebook. In this case, I think Apple’s competitors would want to get into the hardware business not because of the revenue and profits, but to try and retain their access to customers.
Verdict: Apple is still winning. Google is upcoming. Facebook and Amazon have failed.
Tablets – iPad vs Fire Tablet vs Pixel Slate vs Surface
Similar to Pixel phones, Google’s Pixel Slate tablets cannot hold a candle to Apple’s iPad. It commanded less than 2% of the global market share while Apple takes a whopping 59% share. Amazon did better in this area with 5% share via its Fire tablet. Surface tablet is nowhere to be seen as well.
I can attest to that as I have used iPads, Android tablet and a Fire tablet. Nothing can compare to the iPad and it remains my de facto choice, even though it is pricier. The reason I have a Fire tablet was because it was cheap enough for my son to destroy it – it cost less than S$100 and is still working after a year. So I guess Amazon’s share was gained via a loss leader approach.
Verdict: Apple is still winning. Amazon wins in price. Google has no chance yet.
Mobile OS – iOS vs Android
Although Apple has an upper hand in mobile hardware, Google wins in mobile operating system.
The main reason is that Apple is a closed system and you can only use iOS if you buy an Apple product. Google came in later in the game via an acquisition of Android and allowed other handset makers to use the software. This proved to be a smart move as Android is the dominant mobile OS in the world, with 74% market share, as of Sep 2020.
Being vertically integrated, Apple only has data from Apple product users. On the other hand, Google can get a lot more user data as Android is widely used by various handset makers. Moreover, Google has many apps that run on iOS too. Hence, Google has the advantage here.
Microsoft hated themselves for missing out on the mobile revolution. Windows Phone was a late attempt in 2010 to challenge iOS and Android. Microsoft also struck a partnership with Nokia to expand the use of the mobile OS. But both failed.
Verdict: Google wins. Apple has its cult. Microsoft totally lost it.
OS – Windows vs MacOS vs Chrome OS
Microsoft Windows showed the potential and the importance of software to the world. Almost everyone who works on a computer would use Windows and schools started to teach students how to use the software so as to prepare them for a new world. Even today, Windows continues to dominate the desktop/laptop operating system with a 77% market share.
The closest contender is Apple’s OS X that runs exclusively on Apple devices. Chrome OS isn’t popular at all given that it was launched in 2009 and had 11 years of catching up to do. It commands just 1% of the market share.
Verdict: Microsoft is still winning. Apple has its cult. Google has little chance.
Browser – Chrome vs Safari vs Edge
There’s a high chance that you are using Chrome browser to read this article. This is because Chrome has 66% of the browser market share.
But Chrome wasn’t the first popular browser. Netscape had 86% market share back in 1996. Microsoft’s Internet Explorer dethroned Netscape and had 99% market share in 1999, after bundling it with Windows. Apple’s Safari was only introduced in 2003 and taking the leaf out of Microsoft’s playbook, Safari was bundled with Apple devices and OS. Google released Chrome even later in 2008.
I guess their success was from a combination of factors, namely having a better product than competitors. On top of that, related services like Google Search, Android and Gmail took off.
The battle of the browser is really a typical Game of Thrones plot. This just shows how fast technology can shift and that users can be very fickle to change in a heart beat.
Verdict: Google is winning. Apple has its cult. Microsoft trying to make a comeback.
Smart Speakers – Echo vs Google Home vs HomePod
Big Tech is moving into your homes too, and hoping to get a slice of the IoT pie. Amazon introduced Echo; Google has its Home; and Apple with HomePod. As of 1Q2020, Amazon and Google are leading in terms of market share while Apple is far down the rank.
It’s notable that Apple isn’t winning in this hardware war, which is rare. In the field of Smart Speakers, Amazon and Google managed to beat Apple in its own game.
Smart speakers are still in its nascent stage and I believe voice command and voice search are increasingly being adopted and it is a space to watch.
This might become the centerpiece of IoT at home.
Verdict: Amazon and Google are winning. Apple is lagging.
Game Live Streaming – Twitch vs YouTube Gaming vs Facebook Gaming vs Mixer
Amazon acquired Twitch in 2014, Jeff Bezos probably foresaw the rise of game spectators. Twitch dominates the game live streaming views in the US with a whopping 65% share of viewers’ time.
Despite being the champion in online videos, YouTube let this incredible opportunity slipped through its fingers, and only managed to garner 22% of the attention. Facebook Gaming is third with 11% and Microsoft’s Mixer has been a disappointment. In fact, Microsoft is shutting down Mixer and partnering with Facebook instead.
Verdict: Amazon wins. YouTube and Facebook playing catchup.
Music Streaming – Apple One vs YouTube Music vs Amazon Prime
Spotify isn’t considered a Big Tech, although it is currently dominating the music streaming market. It stole the thunder from Apple who was still selling music by songs, instead of a flat monthly subscription fee. Apple has learned from its mistake and has now switched to the Apple One bundle.
Apple is still number two with 18% share of the global music subscription market while Amazon isn’t far behind with 14% share due to the bundling with its Prime membership. YouTube is late to the game when it introduced YouTube Music and commands a meagre 6% market share.
Verdict: Apple and Amazon lost to Spotify, merely hanging on with the bundled subscription. Google further down the packing order.
Cloud – AWS vs Azure vs Google Cloud
Amazon was the pioneer in providing cloud services via its Amazon Web Services (AWS). It started in the early 2000s when its internal staff proposed selling virtual servers as a service. The idea was well executed and today it dominates the cloud market with a 33% share.
Microsoft and Google came in later but managed to take the next two spots with 18% and 9% market share respectively.
We covered cloud related articles previously:
- Why Cloud Computing is the Future and How to Invest In It
- SaaS, PaaS, IaaS – cloud computing segments and 6 investing opportunities
- 4 China cloud companies dominate 81% of the market
Verdict: Amazon is still winning. Microsoft and Google coming up strong.
Social Media – Facebook vs LinkedIn
Facebook wasn’t the first social media, but it has defeated Friendster and MySpace to take the number 1 spot. It is now the king of social media but there have been constant threats to dethrone it. It has managed to fend off competition in the last decade, and along the way acquired WhatsApp and Instagram which proved to be very good acquisitions.
Twitter, Pinterest, Snapchat, Reddit and even LinkedIn couldn’t take much market share from Facebook.
Microsoft wanted a piece of the social media space by acquiring LinkedIn in 2016. Each social media is different and LinkedIn was one of a kind by focusing on career-minded professionals – which is more serious than the casual Facebook.
Do you remember Google+? It was launched in 2011 and shut in 2019. It was a total flop even though Google had a lot of users (but nobody really posts anything on the platform).
Verdict: Facebook is still winning. Microsoft found a niche. Google flopped.
Search Engine – Google vs Bing
Google is the clear monopoly in search. No other companies come close. The second-placed Bing only has a 3% market share.
Google is very active in protecting this advantage – for example, Google pays billions to Apple so that Google Search is available in Apple devices and Safari browser. The US government has decided to sue Google for being an illegal monopoly.
It wasn’t this way at the beginning – Google had to compete with hundreds of search engines such as Yahoo!, AltaVista, Lycos, Infoseek, Excite, Ask Jeeves and MSN Search.
Google managed to deliver the best search experience, and users stuck to it overtime.
Verdict: Google wins hands down.
Advertising – Adwords vs Facebook Ads vs Amazon Advertising vs LinkedIn Ads vs Bing Ads
Advertising is a key revenue for both Google and Facebook – the tech is sexy but the revenue model is plain and simple advertising.
It is a big market and US alone spent $129 billion in digital advertising in 2019. Google and Facebook captured 37% and 22% of the market share.
Besides selling the products by themselves, Amazon has become a marketplace allowing third parties to peddle their wares on the ecommerce giant’s platform. Now, it has allowed the vendors to advertise and buy prominent display spots to promote their products. It has worked very well and Amazon saw the biggest jump in advertising market share as compared to the rest of the competitors.
Microsoft is the weakest among the four – Bing and LinkedIn ads aren’t raking in enough ad revenue to mount a serious challenge.
Verdict: Google is #1 but their share is shrinking. Facebook is #2 and their pie is increasing slowly. Amazon is becoming a serious contender. Microsoft isn’t a threat.
Messaging – WhatsApp vs iMessage
Social media aside, Facebook also dominates the messaging apps in the world. Both WhatsApp (acquired by Facebook) and Facebook Messenger claimed the top two spots, ranking higher than the ubiquitous WeChat in China. The only US Big Tech that has a messenging app would be iMessage by Apple. But it is nowhere near in comparison to other apps.
Verdict: Facebook is winning. Apple has no chance.
As you can see Big Tech companies have their tentacles in almost every area imaginable and they are vying for dominance with one another.
Here’s how the Big Tech match up against one another based on the number of #1 positions:
- Google – 4 (Mobile OS, Browser, Search and Advertising)
- Amazon – 3 (Smart speakers, Gaming live streaming and Cloud)
- Apple – 2 (Smartphones and Tablets)
- Facebook – 2 (Social media and Messaging)
- Microsoft – 1 (desktop/laptop OS)
Please don’t conclude that Google is winning just because it has more #1 positions. It is not a fair comparison because there are battle arenas that I have not touched upon such as:
- Laptop – Mac vs Surface vs Chromebook
- Productivity – Microsoft Office vs Google
- Video Communications – FaceTime vs Microsoft Teams vs Google Meet
- OTT Device – Apple TV vs Amazon Fire
- ebooks – Kindle ebooks vs Google Play Books vs Apple Books
- Maps – Google Maps vs Apple Maps
- AI Assistant – Siri vs Google Assistant vs Alexa
- Video on Demand – Netflix vs Apple One vs Amazon Prime
- Cloud gaming – xCloud vs Stadia (read: What is Cloud Gaming and how to invest in it?)
- Payments – Apple Pay vs Google Pay vs Amazoncash
Modern monopolies are indeed different – they are fighting on all fronts and no one can afford to rest on their laurels or risk obsolescence.
Maybe we don’t need to regulate them since they are fighting among themselves.