How deep are the foundations of our digital giants?

Written by on May 10, 2016 in Opinion with 0 Comments

RiskIt should, surely, be a time to rejoice. Never before have small companies become big companies and then corporate giants so fast. Results over the last few weeks have reflected the stunning success of the first decade of the digital age.

Wall Street loves it.

Results recently in (headlines from Reuters):

  • ‘Facebook in class of its own as ad revenue soars’
  • ‘Pandora revenue rises on ad sales, shares up 11 pct’
  • ‘Expedia posts surprise profit as acquisitions pay off’
  • ‘Amazon profit crushes estimates as cloud-service revenue soars’

Even the increasingly annoying, ad choked, unprofessional network, LinkedIn has ‘raised its forecast on demand for hiring services’. This is, perhaps, not surprising, as there are some simply terrible tech sites out there that get big visitor number purely on the back of job boards (there’s an idea, Ed).

And yet.

Too many digital business models are based on advertising. Many would argue, of course, that this is no bad thing. Advertising is booming. Others, like us, would argue that advertising is a fragile platform on which to build a robust business.

Advertising is following us into apps and into games and is increasingly encroaching on everything we do.

And advertising is under threat. Not only has the industry been late to get to grips with how the digital and increasingly mobile experience works, they are now trying to plunder both. They are very proud of what they call ‘programmatic advertising’ which means that machines bombard you with irrelevant adverts, rather than humans. They talk of analytics and data as if these things will save the day. They won’t.

And if you are now chuckling and shaking your head at this radical and clearly insane view, consider this: ad blocking has been downloaded hundreds of millions of times. We know this, but what we can only guess at is how much the law of customer satisfaction applies here. This says, simply, that for every customer that writes to your company to complain there are 10 that feel the same way but cannot be bothered, or spare the time, to write. We are approaching a point of irritation where the many hundreds of millions who have not downloaded ad blocking software – and almost everyone is aware that it is out there – will take a little time and do so.

The other approach, being increasingly taken by Millennials – who, it turns out, hate advertising on social media – is to only use sites that do not bombard them with adverts. Watch out WhatsApp, which has plans to do so. ‘A Harris Poll conducted on behalf of Lithium, found that 74 percent of 16- to 39-year-olds object to being singled out by brands in their social media feeds. Of those, 56 percent have cut back on or quit using social media sites due to advertisements in their news feeds’.

And if you are still chucking about the state of the advertising industry, and thinking that customers will basically go along with whatever is thrown at them, take Baidu’s recent experience.

A student with a rare form of cancer went onto the site and searched for cures. The advert that he clicked persuaded him to buy a certain cure. And it killed him. Baidu’s allegedly rapacious approach to selling advertising to – particularly – the ‘healthcare’ sector is now under minute scrutiny. It has, very quickly indeed, led Chairman and CEO Robin Li to insist that his employees take a longer term view and look for value not instant revenue. “I believe this is the right way!” said Li in a letter. “It’s the long-term way!”

He also said, “If we lose the support of users, we lose hold of our values, and Baidu will truly go bankrupt in just 30 days!”

Baidu is China’s Google search giant.

Still not convinced that the digital giants are vulnerable? Another headline from Reuters: ‘Carl Icahn says he sold entire Apple stake on China woes: CNBC’. He owned 45.8 million shares at the end of last year. He also said that Apple was worth $1.4 trillion in the middle of last year. Clearly, he changed his mind.

While Apple’s fortune is obviously not based on advertising, others definitely are. Icahn ditching his stake does, however, illustrate the vulnerability of even the biggest of big corporations.

There are other factors that should produce a chill wind down the back of your neck. The IoT is now at the frenzy stage. There have been ‘two dozen major mergers in the IoT space in the first four months of this year’ – Reuters again. There are a lot more to come. This can only increase the pressure on IoT companies to perform quickly to justify the transactions.

And yet.

Machina Research, respected IoT watcher, now believes that – just in the ‘smart city’ arena – cities could waste $341 billion in adopting a non-standardised approach. This, at best, will give the whole ecosystem pause for thought. At worst, it will mean that the juggernaut that is the standards making process will be wheeled into ponderous action. This will cause a long, agonising and – for many – costly, delay.

This, and other factors, such as safety and simple human nature (inertia) will put a brake on the wholesale adoption of autonomous vehicles. Massive advances in healthcare will hit the almost solid brick wall of healthcare regulation.

All in all, the strain that is about to be caused by the massive financial performance pressures across the range of digital services cannot be under-estimated. This is mainly because there is a more than equal, and not exactly opposite, pressure from our regulators and our human nature.

Many of the ingredients of a thoroughly over-heated, arrogant, system are in place to take a big tumble. Facebook, for instance, should stop doing really stupid things, like this.

All it needs (think the ‘unsinkable’ Titanic, or 9/11) is one digital giant to “truly go bankrupt in 30 days” and the digital world will be rocked to its not very deep foundations.

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About the Author

About the Author: Alex was Founder and CEO of the Global Billing Association (GBA), a trade body focused on the communications sector. He is a sought after speaker and chairman at leading industry conferences, and is widely published in communications magazines around the world. Until it closed, he was Contributing Editor, OSS/BSS for Connected Planet. He is publisher of DisruptiveViews and previously BillingViews. .


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