Everyone knows the biggest battles in technology are today being fought by a small number of large organizations. We intuitively know who these great powers are: Google, Apple, Facebook, Amazon, and maybe Microsoft. But we’re not so clear on what it is that makes those particular companies the key protagonists rather than other equally large digital companies — Samsung, Sony, Nokia and Yahoo! among them — who appear to be sidelined.
Calling this a battle, or “The Great Tech War of 2012″, misses the point. It’s far too negative a sentiment when these companies’ main focus is on long term strategy. They are aiming to construct a future in which their products and profits will prosper.
These great digital powers are now building Digital Civilizations, rather than a series of mere products, individual platforms or even ecosystems (around a platform). They are pursuing strategies that reach far beyond the confines of existing markets. They are causing widespread market collisions as they push industries to overlap, merge or cease to exist. They are outflanking and disrupting companies that follow less ambitious corporate strategies.
These new Digital Civilizations use identity to tie numerous disparate products, many devices, multiple platforms and product portfolios together into their long term strategy. Each Civilization has hundreds of millions of active users — often with credit cards attached — far more than even the largest telecom operators or media companies. They straddle industries rather than operating within legacy market sectors. They have an organizing ideology underlying their strategy that motivates and attracts talented employees, excites partners, and is the foundation for the marketing that entices users to become their customers.
What defines these Digital Civilizations? What makes them new and different? Many organizations, companies, industry consortiums, and companies have parts of this strategy in place within their current products. But the new Digital Civilizations have all of the following characteristics:
- Geography. Unlike past platforms or ecosystems Digital Civilizations are not tied to a single device or class of device. They work across fixed and mobile. They run on devices created by rival civilizations. This is where Sony has struggled: Too often, Sony’s strategies have been silo’ed around TV, mobile, PCs or consumer electronics although Sony may be set to change now. Examples: Apple has developed iTunes for Microsoft’s Windows PC. Amazon has an app store that runs on the rival Android tablets and its own Kindle Fire. Google develops multiple apps for Windows Phone and iOS as well as its own Android. Microsoft does too: it makes Office for the Mac; Bing, Messenger and Hotmail apps for almost everything.
- Citizenship. Each civilization has a strong system for identity, usually tied back to a payment mechanism, which is used to recognize members, store preferences and media in the cloud, and deliver a quality experience on any device. Often these identities originated on a single web site, device or application but have now been extended for numerous other uses. Examples: Amazon’s ID has moved from enabling purchase of physical goods for home delivery to being the foundation for its Kindle and app stores. Apple’s iTunes ID now powers both its Mac and iOS app stores, iCloud, the Game Center mobile social network, as well as underpinning digital music sales and TV sales. Facebook’s ID is now used to further the company’s ambitions across the Internet and mobile apps by enabling Facebook’s citizens to log in to numerous web sites and mobile apps and taking their social graph and Facebook’s business model with them.
- Ideology and culture. Companies used to have vision statements. Few employees and even fewer customers believed in them. The great Digital Civilizations instead have ideologies that are ingrained in everything. Google believes in the power of technology, of open source, and of doing no evil. Apple puts the creation of great products before all else, including profits. Facebook aspires to connect people. For Microsoft, this is the area where they struggle most under Ballmer. While Microsoft has strong identity services with Xbox Live, MSN Messenger and now Skype, it lacks a single organizing ideology that motivates everyone. It has several: profits, Windows everywhere, stop Google and Apple. Microsoft needs greater clarity.
- Government. Every civilization has a system of government. It’s essential to provide a roadmap for partners; to arbitrate between product teams working in different portfolios; to ensure that legacy products do not suffocate the innovative disruption that large companies need to succeed long term; and to make hard calls about what is and isn’t allowed. Prior to Larry Page’s return as Google CEO early in 2011, this was Google’s weak spot: the company spread itself too thin. The rivalry between the computer-like Chrome OS and Android demonstrates the failure too. But Google’s role as the spider at the heart of the Open Handset Alliance (that nominally runs Android) has successfully ensured that Android has gained momentum among operators, device makers and app creators despite the iPhone’s head start. This is an Apple strength: under Jobs, the system has been either paternalistic or enlightened despotism, depending on your sentiment. But whatever you feel, it’s indisputably proved very successful to date.
- Religion. Everyone thinks of Apple when I say this — given recent events I’m not going to develop the thinking on the Apple religion further for fear of alienating readers — but Google has its own religion too. Google demonstrates idolatry for Android, see the numerous Android figurines. Similarly, Amazon’s existentialism is most strongly shown by its belief in the (S3) cloud to solve everything, even the small local storage capacity on the Kindle Fire tablet.
How large are these rising Digital Civilizations? Each has hundreds of millions of citizens:
- Amazon. Globally Amazon has over 121 million active buyers (November 2010). They have not disclosed the number of Kindle users but it likely numbers in the low tens of million.
- Apple. There are over 225 million Apple accounts with credit cards attached (June 2011) and there are likely many times more that have an account but either only download free content or use top-up pre pay cards. Apple also claims 67m Game Center users (October 2011) but there will be a strong overlap as the same Apple ID is used for both apps and Game Center.
- Facebook. There are over 800 million active Facebook users (November 2011). Half of these log on to Facebook daily. There are over 350 million active mobile users.
- Google. Gmail used to be the main driver for Google accounts: Gmail is estimated to have had 193 million accounts at the end of 2010 In the future, Android will be more important. The latest version, Ice Cream Sandwich, prompts new users to set up Google accounts with credit cards attached on initial device set up and there are over 550,000 new Android devices being activated daily. Its new social network, Google+, is small by comparison with just tens of millions of users and significantly most of whom will likely already have had Google accounts.
- Microsoft. There are two main drivers for Microsoft accounts: Hotmail and Xbox. The former is the biggest due to its longevity. Microsoft has over 350 million Hotmail users globally (July 2011). As of November 2, 2011, Microsoft reports Hotmail is installed on over 2 million iOS devices and is growing at a rate of one hundred thousand a day.
There are other companies building a Digital Civilization: Most notable are Valve’s Steam gaming system (around 35m citizens); Sony, who are extending from their PlayStation network into a complete media service; eBay with commerce; and perhaps RIM with BlackBerry.
What must other companies do? They must decide how to respond to the rise of these great digital powers, the rise of the Digital Civilizations. There are three main strategic approaches:
- Build a rival Digital Civilization. This is a horribly expensive to thing to do. That’s what it took HP so long to realize with Palm’s Web OS and is why they are having such a hard job selling it now: Having a mobile-only operating system and mobile ecosystem is no longer sufficient to compete, it’s under scale and will be outflanked. HP has spent well over a billion dollars so far and has little concrete successes to show. RIM faces the same problem with BlackBerry: is it possible to create a sustainable future with a platform that is purely mobile? I worry. Last year the CEO of one of the largest mobile handset makers told me they couldn’t afford to create a smartphone OS, the problem is building a civilization is an order of magnitude more costly. The new strategies have to straddle markets or risk being outflanked. This is why Microsoft is so focused on Xbox and mobile, to ensure a long term future it needs to extend its success with the Windows PC to become something much greater, to become a Digital Civilization. In the future, we will see the fight back of smaller companies that band together in industry consortia to build rival civilizations.
- Partner closely with a Digital Civilization. This is a classic strategy. Nokia has done this with its choice to use with Microsoft’s Windows Phone as its main smartphone platform and in future Nokia will likely use Microsoft software for tablets too. Many telecom operators have close historic ties to Microsoft as well. Google and Apple have made much trickier partners. Google has been too unpredictable while Apple has been well, single minded, though under Cook this could evolve. Now is the time to talk with them and find out. By contrast, Facebook has already tied many small knots, including with Microsoft.
- Support intra-Civilization trade. Consumers will be citizens of multiple civilizations for years to come. Companies have a clear opportunity to help consumers to avoid the pain of taking their preferences media across civilizations. Historically, the clearest examples of this have been accessory makers that create and sell physical adaptors. There’s a need for the same role for software and digital content too. Due to their relationships with multiple vendors, and a mass market customer base, telecom operators have a particularly strong foundation for succeeding with this strategy.
Whatever companies decide to do. The most important takeaway from the digital struggles of 2011 is that we are seeing the results of long term strategy by a small number of highly disruptive digital companies.
The fighting is a distracting diversion. Instead, companies must understand the implications from the creation of these new Digital Civilizations and develop their own long term corporate strategy to navigate around the new digital great power landscape.
Companies now must have an integrated strategy to drive how their products respond to the rise of the Digital Civilizations. Otherwise they risk being outflanked as old market boundaries collapse or failure because they fight the wrong battles.
Filed under: Strategy Tagged: accounts, Amazon, Android, Apple, BlackBerry, corporate strategy, credit card, digital civilisation, digital civilization, eBay, eBook, ecosystem, Facebook, Gmail, Google, Google Profile, Hotmail, HP, iOS, iPhone, Kindle, Kindle Fire, Microsoft, MSN Messenger, Nokia, OS, Palm, PC, platform, product, RIM, Skype, Steam, strategy, tech war, users, Valve, WebOS, Windows, Windows Phone, Yahoo!
