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Amazon launch in Seattle in 2018: Alexa is an extremely expensive failure
Photo: Grant Hindsley / AFP
At the end of 2021, the world still looked fine for the planet’s large tech companies at first glance: Seven of the ten most valuable companies by market value came entirely or largely from the digital sphere and worked according to the principles of the platform economy.
The top three were Apple, Microsoft and Google (alphabet), places four to six went to Amazon, Facebook (meta) and Tesla;
five of them were worth over a trillion dollars.
Tech ruled the world!
In the fall of 2022, things seem to be looking very different.
Grim.
There are mass layoffs.
Meta has announced that 11,000 employees will be fired, Amazon wants to get rid of more than 10,000, Microsoft also wants to get rid of several thousand, major shareholders at Google are demanding the dismissal of at least 10,000 and even the overmoney machine Apple is terminating 100 contracts.
With a good 160,000 employees, that doesn't sound like much, but these are contracts from Apple's own recruiters, who had to satisfy the company's great hunger for employees.
Likewise, one reads of sales and profit slumps, at Meta and some others.
The reasons for this are cheerfully analysed, energy prices, inflation, recession in advertising-active sectors, unexpected slumps in the supposed post-corona period, interest rate increases and so on and so forth,
not all wrong.
Somehow.
It's easy to think that tech companies are on the decline, in big trouble, that their heyday is over.
Nothing could be more wrong.
What we are currently witnessing is not a real weakness of the major platforms - but a recurring element of digital business models coupled with the power of stock market narratives.
Maybe with the possible exception of Meta, which actually has medium-sized problems with TikTok and the Metaverse.
It's not about losses, it's about "losing profits"
The truth is that digital platforms are in better shape than ever.
In order to be able to understand this, despite the outcry and also despite the suffering of the many dismissed people, you have to understand: It's not about losses, but about "profit slumps" or a "profit minus": a lower profit than the previous monster profits.
And you have to put that in perspective, because before that, most big tech companies have had a long, long line of incredible record quarters.
At Google, for example, the third quarter of 2021 was so far beyond anyone's imagination with an increase of over 40 percent compared to the previous year - it was practically impossible to increase it.
We're already talking about high double-digit billions here.
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For most large tech companies, the current situation is nothing more than an overdue correction, on the one hand of the grotesquely exaggerated stock market expectations, where everything apart from the further increase in superlatives is viewed as a bitter defeat.
The corporations are feeling the consequences of their own over-success in recent years.
And on the other hand, a special feature of digital business models and especially large digital platforms is corrected here.
We've been living in the platform economy for years.
Digital platforms can take different forms and states, but in most cases they are digital ecosystems around the customer relationship.
The economist Geoffrey Parker, who developed a much-discussed theory of so-called two-sided markets, defines platforms in a relatively understandable way: »Digital platforms are a set of digital resources – including services and content – that enable value-added interactions between external producers and consumers.« As I said , comparatively understandable.
This applies to Apple's power and money base, the iOS smartphone operating system, but also to Google's search platform, to Meta's Instagram and to Microsoft's office applications.
In addition to the linking of different customer groups, the possibility that third parties can earn money with it, i.e. the ecosystem, is decisive.
Google is so powerful because ads are highly effective there, advertisers throw in a coin and it comes out two.
Meta is so powerful because Instagram advertising works better than most other forms of advertising and because so many content-producing people make money from Instagram themselves.
Amazon is so powerful because an armada of merchants trades huge sums of money with it and so on.
because Instagram advertising works better than most other forms of advertising and so many content-producing people make money themselves with Instagram.
Amazon is so powerful because an armada of merchants trades huge sums of money with it and so on.
because Instagram advertising works better than most other forms of advertising and so many content-producing people make money themselves with Instagram.
Amazon is so powerful because an armada of merchants trades huge sums of money with it and so on.
Further development in the living organism
However, an underestimated property of large digital platforms that is also underestimated by economists is their obligation to further develop them.
These can be very different forms of further development, such as Google's constant improvement task of offering the best, least manipulable search.
At Microsoft, to at least achieve acceptable results of digital office work that can still be justified as a standard.
At Meta, to push the creatives to always new, always interesting content.
A platform that doesn't evolve is doomed to decline - and that's where a big problem begins, because that evolution has to take place in the living organism.
Platforms must evolve into their own future without ignoring the present.
As indicated above, this is the most likely situation to be regarded as a real problem with Meta: Mark Zuckerberg has fully bet on the Metaverse, which does not even exist yet, but has neglected the present too much in the process, and in this present the youth of the world are flocking to TikTok, instead of going to Instagram like five years ago.
This further development obligation of the digital platform groups is, mind you, structurally something different than the classic, capitalistic product development, where, for example, in the case of car manufacturers, the next model series must of course follow at some point.
You could roughly compare it with the fact that the car has to be completely reinvented under the buttocks of the driver while driving.
Without the occupants rebelling or worse, braking and getting out.
This metaphor gently hints at how easy it is to get it wrong when it comes to progression.
The large digital corporations in particular are incredibly often wrong in a way that less knowledgeable people would never believe possible.
Most of the time they just manage to make the failures disappear unnoticed.
Almost nobody has noticed that both Facebook's audio plans and Meta's news offensive are already over, that Google's perceived 235 attempts to finally become "social" aren't really being joined by a new one.
That Apple's car plans have been endlessly delayed and may just never become a reality.
And that, to be completely, completely honest, absolutely nobody felt the difference between the iPhone 13 and the iPhone 14 (except Apple, of course).
Which points to an interesting development deficit.
Billions of interactions, but they're hardly monetizable
Even very large and supposedly successful attempts at further development can turn out to be failures.
It's an open secret in the tech world that Amazon has set the standard for smart speakers with Alexa.
And in doing so, it has opened up a number of new possibilities for the first time, from the smart home to digital interaction via voice.
But Alexa is an extremely expensive fail from Amazon money-wise.
Alexa costs Amazon ten billion dollars a year and, strictly speaking, does almost nothing economically.
So little that the Alexa department has stopped setting business goals at all in the area of commissions in the case of orders via Alexa.
Because nobody does that.
In 2019, Amazon had reached one billion interactions per week with Alexa,
but the overwhelming majority of these were smart home commands or questions about the weather.
So interactions that are hardly monetizable.
The Google Assistant has a similar problem.
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Reality shock: Ten lessons from the present
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With platforms, the problem that one runs into dead ends in terms of corporate strategy arises with great regularity.
Either further developments or new products do not work.
Or, sometimes even worse, they work but just don't make any money, no matter how hard you try.
And then such super-platforms, which strictly speaking consist of a number of sub-platforms, need a correction of what is usually the largest cost pool: the staff, who are incredibly well paid on average.
Consequently, most of the jobs at Amazon are lost in the Alexa department.
From an economic bird's-eye view, most of the large platform groups are taking advantage of the mood in the current apparent crash: There is no easier marketable time to part with insufficiently successful parts of the company and also many employees than when there is a kind of crisis in some economic spheres and it yes everyone else does too.
That is the most important reason for the alleged weakness of the digital corporations: Cosmetically, they trim themselves a little for efficiency for the stock market story - only to start a new expansion attempt.
Not that there aren't real difficulties as well, like Meta's, made up primarily of TikTok and secondarily the late arrival of the Metaverse.
But the substance of the big tech companies is bigger and more impressive than ever.
As you can tell from a single number.
The total online advertising market worldwide was around 500 billion dollars in 2021, depending on the estimate.
Only four companies, namely Google, Meta, Microsoft and Amazon, were able to collect around three quarters of this for themselves - all other companies together had to be content with a quarter.
Decline looks different.
