Q2 2010: Google crawled Yelp and displayed its reviews in Google Places without payment
Q1 2011: Google’s acquisition of ITA Software is viewed as a threat to ITA-dependent sites like Kayak and Hotwire
Q2 2012: Twitter stopped syndicating its content to Linkedin and warned third-party developers of upcoming restrictions on third-party use of the Twitter API
Q4 2012: Apple’s Siri will bypass search engines when searching for sports, movies, and restaurants information
2013: Facebook plans to introduce its own smartphone
2014: Google Glasses will provide augmented reality supported by Google services
Companies are constantly looking for ways to maximize usage of their services and own the relationship with the customer. By increasing “face time” with the end customer, the value of their service also tends to go up in value (e.g. Facebook). Since for-profit companies are expected to increase revenues and profits, this tension forces them to view their ecosystem as a series of tradeoffs. This could mean entering adjacent markets and competing against business partners and suppliers (e.g. Motorola acquisition) or restricting distribution of their service in order to maximize monetization (e.g. Twitter API).
Customers stand to gain the most when companies compete in a marketplace. When companies engage in fair and open competition, it tends to lead to innovative new services and lower transaction costs. The Internet does a great job of disrupting companies who fail to keep up with shifting user needs (e.g. Blackberry, Nokia).
But recent moves by Apple, Google, and other large behemoths to compete as vertically integrated services is a bit concerning. In an attempt to disintermediate each other, companies are introducing new products and services that will be “hard-coded” to specific information-based services. Although the vertical integration approach provides a more consistent user experience, it also reduces the customer’s flexibility and options to choose.
The vertical integration model is the ultimate walled garden where companies will be able to steer customers toward preferred information service providers and provide a deprecated experience when accessing direct competitors. In addition, the introduction of integrated hardware, software, and services will result in higher switching costs passed on the customer through equipment and subscription costs.
It will be interesting to watch as the Big Four (Amazon, Facebook, Google, Apple) build out their vertically integrated platforms and choose their preferred business partners in the ultimate arms race to monetize customers. We may enter an era of increasing innovation or a period stagnation where silo’d ecosystems reduce competitive pressures in the marketplace.
