Who would have thought after the 2001 internet bubble’s explosion that companies like Google, Amazon, Facebook and Apple would englobe 15 years later 55% of our digital life and would possess 123 Billion of Dollars in accessible cash reserves (according to a study of the consulting company Faber Novel, published in 2013).
The evolution towards internet era has revolutionized the business world, and has been particularly profitable for four companies which we have classified since some time under the acronym GAFA : Google, Amazon, Facebook and Apple. They have transformed many business sectors (like the publishing sector, the media, the telecom industry, leisure, trade and retail, finance…) and they have created the equivalent of the Danish GDP with less than 10 times fewer individual employees. Their financial power is higher than the 40 star values of the Paris stock exchange.
10 years earlier, Facebook was just created, Amazon was only an online book store, Google was still trying to impose its search engine against AltaVista and Yahoo and Apple had just launched its first Ipod. Today, Google centralizes 90% of all internet searches, Facebook takes 16% of our online time and Apple has changed our way of living thanks to the « devices » (Ipod, Smartphones, Ipad…), its multiple content applications and other new products (Ipad). These companies have a turnover growth of 33% higher than China’s and have spent 45 Billion of Dollars between January 2012 and October 2014 for internal investments or for the acquisition of start-ups, i.e. the equivalent of one third of the total activities in the US.
However, their incredible fast development has just started… Other worlds are promised to experience new big changes, like driverless vehicles, virtual reality platforms (the next revolution after the mobile one), delivery via drones, health care…
How to explain this development? The success of GAFA relies essentially on a good understanding of the transformations our economy is experiencing at the moment:
– The market entry barriers become everyday less important, as the spectacular rise of the figures regarding start up creations in France show us : 23% increase in 2014 compared to 2013 according to a study of EY.
– Product life expectancy is getting shorter every day (We cannot keep a computer/smartphone for 10 years anymore ), due mainly to the never ending innovation.
– Consumer expectations are permanently growing as they do not only want a product but also live an experience.
– There is no more a local or national market: profits are made on an international level.
The GAFA have favoured the internet transformation and have had a strong development thanks to this transformation. IT companies at the beginning, they have become industrial giants by applying their concepts and their own methods in all kind of business areas: IT & Telecom, Health care, Retail, Energy, Media, Finance… It seems that no activity can escape from them.
This revolution of our way of life has allowed them a worldwide deployment and the instauration of a new value theory on which they base their business models. Sarah Nokry (Senior Project Analyst at Faber Novel) even mentions a “corporate culture focused around customer”.
To start with, Google, Amazon, Facebook and Apple have reinvented the notion of customer. The attention that you bring to a product makes a customer out of you and is much more than just performing a financial transaction. This attention is progressively transformed into a commitment and then into revenues with a logic of sustainable customer relationship. We do not consume a product anymore but an experience.
They address a target market corresponding of nearly 3 Billion individuals but their potential market is in reality 7 Billion individuals, which means that almost every person on this planet is a potential customer. They also develop projects for giving access to the internet to zones and populations so far to be connected.
The employees of the GAFA are committed to use at the most products which they develop in order to have more a consumer approach than a producer/ creator’s one as it is more often the case in the traditional company business models.
Part of their success is also due to a new management style and to the attraction these four companies have on young talents.
The example of Google in this area is particularly atonishing. The employees of Google benefit from free and bio canteens, gym halls, football tables and many other possibilities commonly associated to spare time activities. The average age of these employees is 30 years old, with a high percentage of engineers. Google gives also 20% of their time to employees so they can work on their own personal projects. An ideal place to work? First of all, this framework allows Google to create an innovation friendly environment and secondly it attracts talents from all over the world in order to grow up even more. With 37 000 employees Google has only 14% of them Managers and 3% Directors.
This new kind of management is called « Pirate Management ». The culture of learning always something new is strong and hierarchy doesn’t really exist:
– Team work uses the well-known two pizza rule from Jeff Bezos, i.e. the groups cannot be creative and efficient when you need more than two pizza to feed all group members.
– In order to start a project, the coding is more important than the arguments. You don’t need to convince anymore your direct Executive/chief of the interest of a project, but your fellow colleagues, and you have to prove the interest of an idea by building a prototype for testing (take for example the instant messaging system).
However, if the GAFA can be considered as a new model of organization and of adaptation to our society, their fast and massive development calls out governments. From the exponential amount of personal data they store to their global organization, international and local regulations have to be reinforced in order to limit GAFA’s power. In 2014, the European Union has fought to implement the right to forget some pieces of information. There is a real risk for individual rights and freedom’s issues. We can also mention the fiscal optimization these big corporations are using. They pay 22 times less taxes than what they should normally do.
Whereas Russia (via Yandex) and China (via Alibaba and Baidu) have favored the rise of national and international leading companies able to compete against the GAFA, the European Union is only now measuring the economic power and influence of Google, Amazon, Facebook and Apple. Any big digital European company can’t measure up to GAFA, not even to the Russian, Japanese or Chinese competitors of GAFA.
The European D !Conomy » (Digital Economy) only exists in the BtoB sector with companies like SAP or Dassault Systemes, two world scale software editors. But they are exclusively addressing themselves to companies while the GAFA are concentrating their efforts to consumers. It is therefore an emergency to favor the development of European worldwide actors in the new sectors of internet, such as the internet of things, the FinTechs or the eHealth sector in order to compete against the GAFA of tomorrow… and to benefit of a powerful digital economy in Europe.