There’s a new sort of Internet colossus on the rise, and it is poised to wreak havoc on what might be called the world’s legacy business infrastructure–meaning many of the world’s important businesses big and small. If you’re a banker in Greece, a telecom executive in Thailand, or a retailer in Reno, watch your back.
In the first phase of the Internet era, the worry was that brick-and-mortar retailers were in peril. Because most have survived, even as the Internet has burgeoned, the idea that large swaths of the economy are endangered is out of fashion. But this time it’s not just retailers who face daunting challenges, but service companies too, and in some of the biggest–and most lucrative–industries. We are seeing the first signs of the emergence of a small group of e-commerce service companies of a new type–essentially they're integrated online commerce conglomerates. They aim not only to replace shopping malls, but also TV networks, telecommunications, and the banking system, among other services. And they want to do so globally.
The list of contenders for this mega-player role is small–five or six companies–and unlikely to get much longer. I call this group GEMAYA: Google, eBay, MSN, Amazon, Yahoo, and AOL. Each has, in one way or another, the ambition to be a one-stop shop for all kinds of consumer commerce and services. So far, they’re all American, which has implications I’ll touch on later.
EBay’s acquisition of Skype two weeks ago helped me clarify my own thinking about the nature of giant Internet companies in the coming era (See my recent column on this deal, "/fortune/fastforward/0,15704,1103966,00.html".) Then a trip last week to Greece, of all things, got me out of my U.S.-centric mindset, so I could see global developments more clearly. What I saw was a little scary.
Most of us were surprised that eBay would buy a voice-over-Internet-protocol (VOIP) phone company like Skype. But it starts to make more sense, if you realize that three of eBay’s biggest competitors in online commerce–Google, Microsoft, and Yahoo–all recently made moves to add voice capabilities to their own services. Conversely, many believe that Google, and possibly Microsoft and others, will attempt to develop their own online payment services to match eBay’s PayPal. (Some rumors even give the possible Google service a name–Gbuy, which has familiar ring to it, doesn’t it?) And eBay will almost certainly morph PayPal over time into something that looks more and more like a multi-functional consumer bank. I predict Google, and probably others among this net colossi, will also eventually develop what are, in effect, banks.
But these companies are converging in even more ways. Yahoo and Google, for example, are moving quickly to add video news and entertainment to their offerings. Each is coming at this set of combined opportunities from its own strength–Amazon and eBay from shopping and commerce, Google from search and advertising, MSN from communications and news, AOL from instant messaging and entertainment content, and Yahoo from personalization, communications, and shopping. Probably they’ll never all offer exactly the same variety of services. Perhaps several–Amazon and AOL, for example–might combine in order to better compete with Google, which, of the group, seems to have the most momentum.
I’d argue that there are unlikely to be more than one or two new names added to this list. Candidates may include Rupert Murdoch’s suddenly aggressive News Corp. or one of the rapidly growing Chinese net powers, such as Baidu or Alibaba.
Let me emphasize that this is only my analysis. None of these companies will confirm that this is their actual strategy, but the signs are clearly pointing in this direction. So let’s just say, hypothetically, that this group of six American companies–or some subset of it–succeeds in building a truly global phone company/entertainment company/bank/shopping mall. Here’s where my trip to Athens comes in.
I was there to talk to Greek bankers at a forum, co-sponsored by a local technology firm and FORTUNE, about what’s happening on the Internet and how it may affect their industry. In preparing my speech, I realized what a challenge local businesses like theirs may have competing in a global economy, if this vision I’ve sketched out becomes reality.
It’s already starting to be widely accepted among Internet-oriented pundits like myself that in the near future, VOIP of the type that eBay/Skype offers will wipe out or deeply wound many of the world’s wired and wireless telcos. Who can compete with free or nearly free? Will the same be true of local banking once PayPal and a couple of other online global financial service companies offer cheaper and more convenient alternatives? Who knows? The more pervasive broadband usage is among the local population, the bigger and more wide-ranging the challenges may be to smaller, local companies, and the faster those challenges may be felt.
The problem local businesses around the world could have is that big online players will have the advantage of economies of scale–lower costs of purchasing, delivery, marketing, etc. This will allow online conglomerates to sell products or services for less. My friend Andrew Zolli, a futurist and consultant at Z+ Partners, puts it this way: "All of a sudden all these local businesses are competing with a much-lower-cost provider thousands of miles away whose customers reach them only digitally." Zolli also points out that many of the new Internet giants are building businesses that become more useful and valuable to users as they attract more members. So as PayPal or Skype or eBay or Google get bigger, they become harder to compete with.
Bankers and businesspeople in every other industry that may be touched by the growth of these global Internet powerhouses should be thinking now about what will be the genuine advantages of having a local presence. It may turn out that in many industries the best play will be in some way to become a local partner with the new net colossi.
Frankly, if I were Greek–or Polish or Portuguese–I’d also worry that none of the likely players in this emerging universe are European. And if I were Chinese, I’d be hoping that Baidu and/or Alibaba hold their own against their American rivals. It almost certainly wouldn’t be good for the world’s commerce to be increasingly dominated by U.S. companies.
I’m typically among the most gung-ho of boosters of all the marvelous changes to modern life that the Internet is making possible. I still have great admiration for the accomplishments of every one of these innovative Internet giants. But we can’t shield our eyes to the possible downsides of the growth that we usually celebrate.
Questions? Comments? E-mail them to me at dkirkpatrick@fortunemail.com.
