The Great Rebundling: How Tech Giants Are Trying to Swallow the World
First came The Bundling...
In any industry, horizontal leaders (that is, leaders who occupy several different product or service verticals) are inherently vulnerable to competition from new entrants who are vertically orientated (that is, those focused on delivering one product or service).
Successful companies tend to start out with a laser focus on solving a niche problem for customers. They deliver a superior user experience, creating goodwill, loyalty and repeat business. As they grow, they expand their offering to drive revenue and diversify their business. This bundling of products and services can lead to a loss of focus on the core business, often with adverse results.
That’s how the popular theory goes. Call it “The Law Of Focus”. VCs and startup gurus are forever telling startups to stay lean and focus on solving niche, concrete problems for customers. Let’s face it, this strategy worked for Uber, it worked for AirBnB and it worked for countless others.
Certainly, this is a sensible way to launch and grow a business in a developed market with high levels of competition. But it’s not the only way to scale a business that’s already validated. You can’t always apply lessons from the startup world to large incumbents.
Now comes The Great Rebundling
One company that seems to defy The Law Of Focus is Amazon. It operates across multiple sectors - books, fashion, fresh food, media, web hosting, you name it - and seems destined to dominate many of them with its incredible global reach, backend infrastructure, financial warchest and visionary leadership.
As far as e-commerce sales are concerned, Amazon crushes the competition. Approximately 55% of consumers search Amazon for products first, compared to 24% who start with Google. By the end of 2016, Amazon revenue stood at $128 billion. Not content with dominating e-commerce, Amazon is also a major force in web hosting. In fact, its AWS division ended 2016 with approximately $10 billion in sales.
Other big tech companies are heading down the same path, launching new products and services in order to drive growth, diversify revenue and monetise large user bases. Google and Apple are investing heavily in driverless cars, amongst other things. WeChat and others are becoming platforms that handle P2P payments, financial services, transportation and taxis and allow users to buy products. And Facebook is looking to bundle most activities performed by users on the web. At the centre of this strategy is a burning ambition to crack the classifieds market with its new offering, Marketplace.
Is this a trend, or a structural change in the way the global economy operates? Are we witnessing the start of a “Great Rebundling”, in which big tech companies with huge global footprints seek to gobble up market share from smaller players? Or, are these grand initiatives to pivot from vertical to horizontal business models an exercise in hubris, destined to fail?
It’s too early to tell. Certainly, users enjoy the convenience of being able to perform tasks via a small set of horizontally oriented platforms. We simply don’t have room in our lives - or our home screens - for hundreds of apps. And yet, it’s hard to imagine a future in which small, agile players can’t provide a better offering than bloated giants.
Implications for Classifieds
The modus operandi of this sector is to bundle hundreds and thousands of verticals under one horizontal banner - be it Craigslist, Ebay, Gumtree, Kijiji, Oodle or OLX. These big players therefore seem vulnerable to unbundling and this is bound to occur over the coming years as startups move in to monopolise verticals with superior user experiences, innovative business models, cool brands and highly targeted marketing and distribution. Just as Yahoo’s original directory was usurped by Google’s superior approach to accessing information through search, incumbent classifieds are at risk of becoming obsolete if they do not innovate quickly.
And yet, Facebook’s move to launch Marketplace flies in the face of this assumption and seems to add to the creeping suspicion that we are now entering a new era defined by the dominance of ubiquitous names like Facebook, Amazon, Apple, Microsoft and Google.
The Great Rebundling is underway. Only time will tell if it’s here to stay.
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