Professor of Financial Services Innovation
With everything that is happening around AI, VR, AR and the Metaverse, it feels like the BigTech Giants are shifting gear on Mount Olympus. And although the technology and its applications are certainly exciting, we tend to lose sight of what is really happening. Much more than a race to build the best generative AI tools or come up with the most impressive headset, this is a race for reach.
Digital platform companies have become powerful economic entities. The European Commission recently designated six of these digital platforms as ‘gatekeepers’ under the Digital Markets Act: Alphabet, Amazon, Apple, ByteDance, Meta and Microsoft. The names should sound familiar. Gatekeepers provide an important gateway between businesses and consumers on specific platform services like social networking, video sharing or operating systems. To put it simply: as platforms, they have so much market power that they need to be controlled and supervised. With great power comes great responsibility.
Digital platform companies derive their powerful economic position not from their great products, but from their ecosystem. Each of the six gatekeepers is a network company, centred around a core platform, built on powerful network effects. A network effect occurs when a product or service becomes more valuable as its usage increases: buyers benefit from more sellers, content makers benefit from more content consumers, etc. This well-known flywheel effect is the source of scalability and, in the end, ‘reach’. Once established, the network reaches a huge number of users, a powerful asset to deploy new products and services.
In today’s competitive landscape, the network matters more than the product. If we use this lens to analyse what is happening on Mount Olympus today, the race for reach becomes obvious. As Meta launches its solutions for conversational AI (28 celebrity personas) and generative AI (image generation model Emu), it uses the reach it has built to integrate and embed these solutions into its own platforms: Instagram, WhatsApp and Messenger. Microsoft is doing the same with its AI product Copilot which focuses on productivity. Embedding AI solutions in its Windows and Office 365 platforms creates instant reach and deep integration. Good luck to competing companies trying to build that kind of reach from scratch.
Yet, another interesting shift is happening today. These Digital Giants not only leverage their own network power but turn to other Digital Giants to leverage their reach. Meta and Microsoft seem to be leading the way here. As Microsoft becomes a preferred (not exclusive) partner of Llama 2 – Meta’s open-source LLM (Large Language Model) – Meta gets access to Microsoft’s reach. Llama 2 will be part of the Azure AI model catalogue, a platform that allows companies to build AI applications using Llama 2. Next, the Meta AI conversational assistant will use Microsoft’s Bing search engine, combining the AI LLM with real-time and updated search data.
Meta will also integrate several complementary Microsoft services into its Meta Quest VR/AR platform: Mesh for Teams, Microsoft 365, and Xbox cloud gaming will all be available on Meta Quest devices. Onboarding large userbases to kickstart your own platform is a well-known strategy in the world of platforms.
All this obviously makes sense from a platform strategy perspective. Gone are the days of “there’s an app for that”. Today users want ease of use and deep integration of new tech into the tools they are already using. And to provide this, the gods on Mount Olympus are not only fighting but also collaborating and leveraging each other’s superpowers. But what about the lesser gods or humans? How much room will there be left next to these digital platform ‘gatekeepers’? Companies today need to understand and fundamentally rethink the role they can play in an economy driven by digital platforms and business ecosystems. Which companies do you partner with? Which business capabilities can complementary players provide? What platform opportunities are out there today for your company? How do you leverage the reach others have built? Defining your position will become a competitive necessity. The race for reach is on!