Of FAANGs and ANTs

Everybody loves Chewie!

Google, Amazon, Facebook and Apple  play in a league of their own, dominating their respective core markets in ways that make it seem impossible for any serious competitor to arise anytime soon. Besides, all four share a certain nefariousness as well as the ability to focus tightly on the one thing that counts for them, namely raking in obscene profits regardless of the cost to society. The term “greed capitalism” could have been coined specially for them, and unless forced to they disregard all norms of civilized commerce, fair business practices and even basic human decency.

Of course there are loads of companies that play in the second division, so to speak: Uber (ride sharing), AirBnB (hospitality, Plantir (Big Data) or WeWork (co-working) spring to mind; all of them belong to the rare species of Decacorns – companies that have managed to achive a market capitalization of ten billion dollars or more. It seems doubtful, however, that any of them will one day manage to rise to play with the really big boys. At the end of the day, they are niche players (big niche players, admittedly)  in their separate fields, but they hardly effect the everyday lives of billions of people in the way the GAFAs do. Hard to imagine life in the digital age without Google; without Uber, life would go on.

So if we want to look for possible succesors to GAFA we need to turn to the East. Chris Skinner, a journalist and financial consultant, wrote in thefinancier.com: “Forget GAFA, the real threat is FATBAG!”

The abbreviation stands for Facebook, Amazon, Tencent, Baidu, Ant and Google and thus for a kind of Gang of Six that include the three most powerful Internet companies in China.

Baidu is China’s Google and has recently made the list of the five most heavily trafficked websites in the world. Like its U.S. counterpart, Baidu is at home in many different markets, from music downloads and AI to self-driving cars and busses. Criticism of Baidu centers around its willingness to blindly obey the powers that be in the Middle Kingdom. Reporters Without Borders, a human rights organization, accuses Baidu of systematically purging its search engine of “subversive” content.

Baidu has developed an operating system of its own called Apollo, that uses voice control and artificial intelligence. Baidu seems intent on establishing Apollo as the “Android of the automobile industry”, and it has signed an agreement with BMW as a major step towards this end, so watch what you say when at  the wheel; Bejing is probably listening!

Ma Huateng, also known as Pony Ma, the richest man in China according to Forbe’s World Billionaires list, founded Tencent, Chinas equivalent to Facebook – except that Tencent can do alot more than Facebook! Ma’s company operates one of the world’s leading game platforms; its smash hit, Honor of Kings, draws more than 80 million gamers a day. Tencent Music, which runs the music portals QQ Music, KuGou, and Kuwo, dominates the Chinese market. Reportedly, Ma is currently investing heavily in artificial intelligence technology with the aim of further improving his existing services as well as enabling new ones. Tencent’s messenger app, WeChat, and its online payment app far surpass Facebook in their ability to handle online payments, which in China is on the verge of replacing cash as the accepted way of paying for everything from restaurant tabs to groceries or newspapers, not to mention billions of online transactions.

Ant Financial is a subsidiary of Alibaba, a huge conglomerate founded in 1999 by Jack Ma, a former English instructor, who recently stepped down as chairman and CEO to enjoy his fabulous wealth. With turnover exceeding 40 billion dollars a year, Alibaba is considered the “Amazon of China”. Ant, on the other hand, is the parent company of Alipay, which last year was responsible for online payments totaling more than eight trillion (!) dollars; half of all online transactions in China. This compares with the measly 155 billion handled by its nearest U.S. competitor, PayPal.

Another abbreviation making the rounds among stock broker since late 2017 is FAANG, which was coined by Jim Cramer, the host of CNBC’s program Mad Money. He adds a fifth tech giant to the four usual suspects, namely Netflix – an interesting choice!

To use an analogy every fan of Star Wars will understand immediately, Facebook, Amazon, Apple and Google represent the dark side of the force, while Netflix is like Chewbacca, the big, clumsy, lovable bear who flies spaceships and is fondly known as “Chewie”. While the other online mammoths are constantly being accused in the headlines of exploiting their users’ data, dodging taxes, abusing their monopoly powers and being the digital equivalent of drug dealers, everyone loves Netflix – although in fact Netflix dominates its market just as effectively as Amazon does online commerce or Facebook dos the Social Web. Since its founding in 1997, Netflix has fundamentally transformed television. The company began life in DVD rental but sooner than others recognized the huge potential of streaming video, which it pioneered, creating a whole new market. Writing in June 2018, the Economist described Netflix as “the world’s first global TV powerhouse”. But unlike GAFA, Netflix made it to the top without incurring public protests, much less threats of increased government supervision.

One reason is that no one in the past seems to have taken Netflix seriously. The big media companies slept through the streaming video revolution just like newspaper publishers remained largely ignorant of the opportunities the World Wide Web was offering. As a result, the majors were willing to hand over their digital video content to Netflix for peanuts in the beginning. Now, they need to scramble to catch up with Netflix or at least stay in the race. The recent megadeals such as the takeover of Time Warner by AT&T or the vicious bidding war between Comcast and Walt Disney over the pay TV channel Sky are best seen against this background.

The other tech giants are busy studying the rise of Netflix to understand how they managed to keep out of the limelight. One reason is that Netflix itself has stayed away from the news-gathering business, chosint to remain  a harmless peddler of  entertainment for the masses. At no time has Netflix’s name been associated with things like Fake News or election tampering. And unlike Google or Facebook, who rely on advertising for the lion’s share of their revenues, Netflix has remained true to its old-fashioned subscription model. That means they don’t have to persuade users to hand over their personal data or sell their attention to the highest bidder.

GAFA are unmistakably American companies, but Netflix has managed to transform itself into a truly international entity with TV shows airing in 21 countries and in dozens of languages around the globe. They now has more subscribers outside America than inside it. “Other tech firms can learn from Netflix to use data with greater care, to be clearer about the terms of trade with their customers and to be more respectful of local markets”, the Economist counseled. Whether the present crop of GAFAs will take that lesson to heart remains to be seen.