IBM, Yahoo, AOL, BlackBerry, Nokia had been the biggest tech companies in their days, just a decade or two ago. They defined of the standards in their categories and they set the bars high for others to reach. Unfortunately, news about them today comes with a feeling of nostalgia. Some may not even know what these companies do now. They have been kicked out of the game so hard by what we call the FANGs, the “big four” of technology, and they are currently growing at breakneck speed.
Facebook, Amazon, Netflix, and Google are the FANGs. They are other companies which are even bigger than the FANGs and should be in this category. For example, Microsoft has a market cap over eight times more than Netflix and should be included. I guess the name has a nice ring to it to change it. It should rather be the FAAMGs, Facebook, Apple, Amazon, Microsoft, and Google. But for the scope of this article will be limited to the FANGs.
The Fangs have been soaring high since the turn of last year. Their share prices have climbed fast. Together, they are now worth an extraordinary $250bn as of 2017. To put that sum into perspective, all the Gold mined in a year all over the world is worth only about $115bn. It could also be compared to the annual GDP of countries like Ireland Pakistan and Venezuela. In wall street, these four companies are valued at more than $1.5tn, about the same as the Russian economy.
These companies have found their formulae for success which is specific to them which has made them grow to such heights. Though these formulae for success are different or specific to each company, they are built around strategies that could be applied anywhere for success. We will take a look at some of these strategies.
The Business model
Facebook, for instance, does not ask for all of your personal information just to help you find family and friends. It collects enormous amounts data about its users. Facebook does this to know the user, his/her likes, and dislikes, the kinds of food he/she eats, the kind of movies he/she likes watching, all kinds of data. This data is essential for Facebook’s business model which is targeted advertisement. Facebook gets about 85% of its revenue from advertisement. This is also the case with Google, most of its revenue also comes from advertisement. These two companies have been so successful with advertisement not just because of the number of subscribers they have but also because they can make it as efficient as possible by making the ads highly targeted.
Google and Facebook have 20% of the world’s entire global Ad spend, and over one hundred billion of advertising revenue in 2016, almost three-quarters of all online advertising. Google has over 85% market share of search in Britain.
While Facebook relies only on the ad spaces on its website and Instagram (owned by Facebook), Googles, on the other hand, uses the Google AdSense program to cover more ground. It has over 2 million users, some with multiple websites. These users provide more ad space for Google to display ads and reach more people with relevant and targeted ads. This makes Google one of the biggest advertisement platforms in the world.
Amazon and Netflix’s business models are E-commerce and subscription models respectively but Amazon to a lesser extent uses user data to display targeted content like similar products or “bought together with” items based on your browsing history and Netflix uses data about the shows you like to recommend more shows. This strategy keeps people buying more on Amazon and having the need to pay for next month’s subscription on Netflix.
Google Facebook and other big companies see small startups founded on bright ideas as a means to get ahead of the game. It is a “don’t fight them, buy them” strategy.
As of December 2016, Alphabet, Google’s parent company, has acquired over 200 companies, with its largest acquisition being the purchase of Motorola Mobility, a mobile device manufacturing company, for $12.5 billion.
Many Google products originated as services provided by companies that Google has since acquired. For example, Google’s first acquisition was the Usenet company Deja News, and its services became Google Groups. Similarly, Google acquired Dodgeball, a social networking service company, and eventually replaced it with Google Latitude. one of its most important acquisitions is the video hosting service company Next New Networks, which became YouTube Next Lab and Audience Development Group. CEO Larry Page has explained that potential acquisition candidates must pass a sort of “toothbrush test”: Are their products potentially useful once or twice a day, and do they improve your life?
Most of Facebook’s acquisitions have primarily been ‘talent acquisitions’ and acquired products are often shut-down. Facebook CEO Mark Zuckerberg has stated in 2010 that “We have not once bought a company for the company. We buy companies to get excellent people… In order to have a real entrepreneurial culture one of the key things is to make sure we’re recruiting the best people. One of the ways to do this is to focus on acquiring great companies with great founders.” The Instagram acquisition announced on 2012-04-09 appears to have been the first exception to this pattern. While continuing with a pattern of primarily talent acquisitions, other notable product focused acquisitions include the $19 billion WhatsApp acquisition and the $2 billion Oculus Virtual Reality acquisition.
Amazon just acquired Ring, the smart Video Doorbell Startup, in Amazon’s second-largest acquisition ever. it was Ring is now being bought for more than $1.2 billion.
These acquisitions are smart decisions to gain grounds in upcoming categories and markets.
The FANGs have founded a development formula for success when it comes to development. TechAltar explains this concept in his “the story behind series”.Though its a comparison between Google and Apple, the theory applies in this here.
Google, for instance, first build a ton of products, anything that seems like a good idea, release it to the public in a beta program. from user feedback, select products that work and further developed into polished products using user data to guide you along the way. This strategy does not require too much effort and avoids wasting resources since products that don’t work can be seen and killed quickly. Facebook also employs a similar product development strategy. Netflix and Amazon use a different strategy for product development. To maintain brand reputation, it’s not an option for them to make half-finished products and send them to the market to get user feedback to improve the product because its hardware like Amazon’s Alexa which can’t be updated after shipping so it has to be at its best before shipping. Interest in a TV show is influenced by how good the Pilot is. Netflix makes shows exclusive to Netflix and most of this shows like STRANGER THINGS, are the most watched shows on Netflix because, from the pilot, a lot of effort goes in to make it as good as possible for peakin
g watch interest.
Whenever technology changes the landscape of an industry, there are some businesses which keep on doing the same thing and eventually fail but others adapt and thrive.
At their peak in 2007, Nokia had about 51% market share for mobile phones
In many respects, successful market speculation is about outsmarting other market participants. The enormous amounts of data that the FANGs control, begin campaigns with deep insights from data analysis and market trends research. They are able to anticipate or create markets with high potentials and make products for this market.
Amazon was able to anticipate the smart voice device market and created the Amazon Alexa smart assistant just in time to grab a huge share of the market. The Amazon Alexa was announced out of the blue.
Amazon also recently acquired Ring, the smart Video Doorbell Startup, in Amazon’s second-largest acquisition ever for more than $1.2 billion. I think that is also a great anticipation decision since more people are bringing smart devices into the home.
These are some of the strategies that the FANGs have used to become the largest tech companies in the world.
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