I have discussed this a bit in the past but I have such a strong belief that I thought I’d revisit this. We live in an increasingly digital world and while there are hundreds of companies in the race to provide valuable and profitable services, only a few are able to dominate. Why? Because they’ve been able to build strong ecosystems that make it very difficult for others to compete.
What Do I Mean By Ecosystem?Think of 4 companies: Google, Apple, Amazon and Facebook. These companies have all used very different ways to get it done but they have each built an ecosystem. They have core products that are so strong that they can attach other offerings very easily either by building it themselves or by getting outside help. Here is a brief summary:
-Apple (NASDAQ:AAPL): This one is probably the easiest. Apple has an incredibly strong lineup of products dominated by the iPhone, iPad, iPod, etc. They all evolve in a closed ecosystem where developers and content producers can sell their content (generally through iTunes).
-Google (NASDAQ:GOOG): Google started off with the best search product but that has evolved over time to a browser (Chrome), an email client (Gmail), the top mobile operating system (Android), an ISP (Google Fiber), the top video platform (Youtube). Google is able to combine all these products together to create unique products such as Google now and an overall experience.
-Amazon (NASDAQ:AMZN): Some would argue that Amazon doesn’t quite fit. I would argue that point. Amazon has built the top ecommerce ecosystem in the world with an exceptional distribution network, that enables it to sell its physical stuff, but also articles from third parties. Amazon also controls the ebook market and is increasingly taking over other markets such as physical books, cloud storage/computing, etc.
-Facebook (NASDAQ:FB): I fully expect some of you to argue that Facebook does not belong here. Time will tell I guess. The company is the top social network, has the control over how thousands of companies manage their online marketing campaigns, etc. Being at the center of how people connect with each other and with their favorite products and brands gives Facebook a lot of very valuable knowledge that makes it easy for Facebook to allow developers to build on top of its platform but also to offer its own products.
Competitors Struggle To Compete With Advanced EcosystemsI could name many high quality products that are facing competition from these 4 names. The problem of course is that these 4 can easily launch products expecting to make little to no money for several years. If it makes their ecosystem better for users and helps them take out competition, that is good enough. Just a few examples:
-Online music: I’ve already said that I’m very skeptical of standalone names like Spotify and Pandora (P). The problem is that they’ll end up competing with Apple (iTunes and upcoming radio service), Google (launching a music subscription service through Youtube), Amazon, etc. How will they be able to compete?
-Wearable Devices: It’s the new “cool” thing with companies like Fitbit and Jawbone offering products that I personally love and believe in. But Apple is reportedly working on the the iWatch, Google is already in advanced testing of the iWatch, etc. Those devices will be connected to ecosystems that already know a lot about me which seems like a huge advantage.
-VOIP: Products such as Skype have had huge success but I’m not sure how they can compete with Facebook’s VOIP offering as well as Google Voice, etc. Most of us already have the Facebook app, have our contacts in there.. so why would I install Skype then go through all of the trouble of adding contacts, etc?