July 3, 2018 - No Comments!

Digital 101 – GAFAM – Tech’s Frightful 5

 

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In 2012, author Bruce Sterling singled out a group of five companies that all offered their own vertically-integrated “technology stacks”: Google, Apple, Facebook, Amazon and Microsoft. Together, they are referred to as the ‘Frightful Five’. In the years since the conception of the term GAFAM, these five companies (recently referred to as FAMAA with Google being integrated into parent company Alphabet) have significantly disrupted organizations across industries. As a result, these five technology companies have been significantly discussed and watched out for.

The business strategies of the GAFAM organizations was articulated nearly a decade before the conception of the term, when Editor-in-Chief of WIRED magazine, Chris Anderson, published his book, ‘The Longtail’. Anderson states that the theory of the ‘Long Tail’ is that our culture and economy is increasingly shifting away from mass markets to millions of niches, something that each of these tech giants have pioneered. As a result, it has become easier for consumers to find and buy niche products and services, thanks to the infinite shelf-space that digital platforms possess. New distribution mechanisms, such as digital downloading and peer-to-peer markets have broken through the bottlenecks of broadcast and traditional bricks and mortar retail.

How are GAFAM companies embodying the Longtail game? Take Facebook for example. Facebook Ads give the social networking site a symbiotic relationship with businesses and consumers alike. Businesses invest a reasonable amount of money advertising on Facebook. Based on consumer behavior, Facebook connects consumers to ads that may be of interest to them, much like a matchmaker. However, rather than pointing to a website, consumers are taken to a Facebook page for the product or service where they can find out how others are using the product or service, and why they like it better than others in the category; thus, building a community of users. Facebook derives advertising revenues, businesses obtain new users, and consumers feel they are a part of a community.

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The reason that Google, Amazon, Facebook, Apple, and Microsoft are dangerously disruptive is because they function as marketplaces, providing platforms for producers to reached larger audiences connected by the internet, while providing consumers with more choices from competing brands. Essentially, these technology giants are increasingly worming their way into every aspect of consumers’ lives’, firmly planting their feet at the foreground of the Digital Age. How so? GAFAM organizations focus on three crucial elements: Data Management, Innovation, and Agility.

  1. Data Management Strategy:
    1. Google is considered the centre point of all existence. The trillions of data consumed by people by the minute all start from the thought to ‘Google it’, allowing Google to create a path of engagement, collecting tons of data which allows them to understand consumer behavior.
    2. Facebook’s consumption analysis and behavior mapping has recently been in the news. While the world is still on the fence about this activity, claiming disruption of privacy, there is something to be said about Facebook’s ability to give each user a unique experience on the platform through personalized advertising.
  2. Innovation: GAFAM is at the forefront of transcending industry boundaries:
    1. Ten years ago, we would have laughed at the idea of a Google entering the world of cars. But now, even Apple is testing one
    2. Amazon is disrupting industries as varied as television entertainment, financial services, retail, and more.
    3. Facebook and Microsoft have recently partnered with a mutual fund to launch the Microgrid Investment Accelerator (MIA), which aims to mobilize $ 50 million by 2020 to research and develop new technologies in the field of microgrids.
  3. Agility:
    1. In keeping with the ‘Longtail’ strategy, Amazon differentiated its offerings through a series of applications – Amazon.com, Amazon Pantry, Amazon Prime Video, Amazon Pay to name a few, made popular in quick succession, keeping retailers on edge. The key to Amazon’s agility is CEO Jeff Bezos ‘two pizza rule’ – the philosophy that every team needs to be small enough to be fed by two pizzas. This allows teams at Amazon to work autonomously – owning their projects and products end-to-end, communicating better, and taking faster decisions.
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Indeed, the Frightful Five are so well protected against their competitors that in most situations, the rise of new companies only solidifies the GAFAM position:

  • Even when Netflix becomes the most watched media platform, it will still be hosting its movies on Amazon’s cloud
  • Despite the number of companies venturing into the space of desktops and laptops, these devices will continue to run on Microsoft Windows
  • Google’s venture capital arm has a huge investment in Uber
  • Apple and Google receive in-app payments from the apps hosted on their stores

It is a given that GAFAM will continue to dominate the markets for the foreseeable future. The use of any of them appears to be inescapable. In effect, GAFAM operates on a ‘Moligopoly’ – no one is in complete control of the markets, but as a union of 5 stands as an indomitable force.

Published by: Nikita Madhu in Blog

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