In the 1990s up to 2005, the digital value chain was dominated by the owner of the operating system and microprocessor manufacturer, it was the famous « wintel » success factor. Meanwhile, in the previous years, Microsoft continued to be a cash machine on PC. On mobile, Google and Apple demonstrated the importance of the operating system layer component (see : Google’s Brilliantly Cuckoo Strategy). However, in the recent years, the raise of major applications such as Facebook, Snapchat, but more specifically Wechat, have concentrated series of services and content far beyond their initial core busines and have been changing the value chain.
- From a 2 players game to a global 4 players dominance
In his talented presentation, « Mobile is eating the world», Benedict Evans demonstrated the concentration of the annual revenue within the GAFA (Google, Apple, Facebook, Amazon), and the size of the cumulated revenue versus the dominant players of the PC era : Microsoft and Intel.
This graph is a brilliant demonstration that digital economy has changed scale by a factor of 20 times, and this evolution occurred through a few global players that are concentrating a massive part of the revenue. We have a similar phenomenon within the B.A.T. (Baidu, Alibaba, Tencent) in Asia.
It is interesting to compare the market cap of those players, which is the forecast of their future as anticipated by the stock markets, to the operating income, which represents their performances today. A way to do it is to sum up all the market cap of the 8 players and see what they share, and process with a similar approach using the operating income.
2. The raise of meta application
In the last five years, we saw the rise of social applications with a series of successful players such Facebook, Snapchat, Wechat, Line (in Taiwan), Instagram. Those new players, concentrating massive audiences and time spent, are redistributing the stakes of the value chain.
Capitalising within their reach, successful social applications are expanding in a way to be able to grab bigger parts of the value chain.
- Snapchat is now offering a broad offer of news content in partnership with worldwide brands. It also includes voice call, and more recently: video call features.
- Facebook, being the number one social network worldwide, is the number one news platform. The Facebook application is offering O2O messenger, voice call, video calls, business services…
- Probably less visible in the western world, but by far THE application to have in Asia, and particularly in China: Wechat. What was initially a social application is now concentrating an amazing list of additional services. From your wechat application you can transfer money to your friends, make video conferences, meet people, call a taxi and distribute randomly money to your group of friends.
Scanning the Googleplay and App store, it is impossible to not find an application that is not offering a connection, extension, or type of link through an API coming from those players. They went from being successful applications and are now becoming meta applications.
In a digital economy going towards free services and content, where data and reach are becoming the cornerstone of the advertising eco-system, those meta applications are offering both, over what used to be the unique privilege of the operating system. The dominance of FAN (Facebook Ad Network) in the mobile advertising market is only the beginning of this massive change.