The twentieth century was defined by the battle of economic ideas and the battle of the “ism’s” – capitalism, fascism, socialism, and communism. It gave rise to Karl Marx, John Maynard Keynes, Milton Friedman and Ayn Rand. It set in motion the cold war, which raged for half a century.  In the end the idea of free markets and self-determination would win out, the ultimate winner not being necessarily an economic model but the idea of democracy and individual freedoms.  This was not a total global victory as many countries would struggle and ultimately find their own path in the world.   In the midst of it all was created the power of Wall Street and the belief that all that mattered in life was maximizing shareholders value.  That ability to squeeze every last cent out of a company and its profits.  As the century came to a close something new dawned upon mankind, the age of the internet and technological revolution.  One of the big shifts the internet created was the concept of indirect selling and funding models. Highlighted in Ray Ozzie’s one and only memo when he was with Microsoft.  At the time he was commenting on Google, which was using huge online ad revenues to fund things like Google Docs. But this has expanded beyond Google and now is creating a new economic model that will rivet through Corporate America, and I predict will wipe out half of the Fortune 500 companies that exist today.

Google was the first to really figure out how to monetize all those visitors to its search engine,   Prior to Google there were those that had highlighted their internet traffic.  And though the numbers were nice they had failed to capitalize  on their new-found fame.  Netscape was the first I remember.  Doing what seemed weekly, if not daily press releases on the millions of visitors to their website every day.  They just could not turn it into real dollars.  There were search engines like Excite, Alta Vista and Yahoo.  However none seemed to get the formula correctly.  Not until Google arrived on the scene and created a user search experience better than what had previously existed.  More importantly they knew how to turn it into money.  They have since created Android for mobile devices, which can in turn generate more revenues.  The goal of robotic vehicles will generate more search revenues.  In the process they have taken those huge sums of money to create Google Docs, which can be and likely will be a serious threat to Microsoft Office.  Google Docs may not make any money today or next year or the following year, but it has a money-making machine behind it to keep it relevant.  Once all the world’s information is made available online, the world can be their oyster.

Amazon followed a much different course.  Never paying heed Wall Street and more focused on its own ambitions. What started out as an online bookseller has become a leader in Cloud Computing and the greatest threat to Wal-Mart on the planet.  I remember when Jeff Bezo’s announced that Amazon was going to be a Cloud Leader. It seemed odd and unlikely.  At the time they had a lot of data center with servers, most of which were under utilized.  They were going to more or less operate like a utility company and needed to leverage excess capacity. There is no question in the past ten years Amazon has become the leader in cloud computing.  What I think get’s lost is that these cloud consumers are not a bunch of IT folks coming in and saying, “can we use your cloud”?  What many are, are small business wanting to leverage Amazon’s retail reach and re-sell their products through Amazon.  It is more or less an indirect model where Amazon can say, “Would you like to sell your products?  Please sign up here!”.  Negotiate a monthly rate and all of a sudden you have millions using Amazon Web Services.  A lot of cloud sites I have been to are very IT focused, anyone outside of IT would have a hard time understanding the value.  Amazon has done a phenomenal job of leveraging what it does best to create a new market dominance for themselves

Facebook became that company that was a social destination point on the web.  It seemed within a fairly short amount of time it was the social hub of the internet.  Today is valued at over $200 billion.  Beyond the over one billion subscribers it has today, it has something cool, people hang out on Facebook.  The longer the people hang out the more opportunities Facebook has to monetize that time.  Since going public in 2012 Facebook has quickly amassed earnings in excess of $12 billion.  That is pretty amazing considering when I joined Microsoft in 1991, after it had been public for 5 years it was just cracking one billion.  Facebook has generated ad revenues, been at the forefront of mobile, etc..None of this selling directly to customers.  No subscription fees.  They just figured out if they can get eyeballs to the sight they can in turn generate revenue.  They have great leadership and seem laser focused.  I remember a time…lets not go there.

When we look at the disruption in our world as countries look to break free of centuries of totalitarian rule, it seems in events like the Arab Spring in Tunisia or the Green Revolution in Iran, one communications medium that is consistent is the use of Twitter to the outside world.  Twitter has become the aggregation point for news and what is currently happening in the world.  They are the pulse of what is happening on the internet.  Though they just did an IPO in the past year and dare being scrutinized, they already are a billion company.  Again they do not sell direct to anyone they just get people to register and use the service.  Twitter is big on mobile devices, so they should have the capability to increase revenues.  More than any company they will kill print media.

What these companies have all become is destination point on the internet and by accident or intent have become leaders in Big Data.  The fact that all these companies are accumulating vast amounts of data, provided they can manipulate that data and monetize it , will give them a huge competitive advantage.  The company with the most data will win.  Amazon is already owns one of the ten largest databases on the planet.  A database full of everyone’s purchasing habits.  What if they can effectively analyze and monetize that data, what will that do to Wal-Mart or Target?  If Google collects all the world’s information will there be any limits to their continued expansion of revenues?  If all news is aggregated in Twitter will there be any need for direct 1-1 news services?  All these new information tools challenge different traditions.  Killing along the way those that no longer belong.  How many people still get a newspaper?  Have Lanline phones? Send personal invites via traditional postal services? What will the future bring for transportation services?  We see 20th century conglomerates crumble before us and soon beneath us.

These companies represent significant changes to how companies will operate in the future.  For the most part they don’t manufacture products.  What they invested for upfront is not how they generated revenue, it did generate a massive audience.  The money came later.  Our leading economists and philosophers of the 20th century would need to re-think a lot of their guiding principles.  But maybe that is the point, times change and what was once considered infinite may no longer even be relevant.  A lot is determined by generations and as one dies out another is born, Sometimes the new generation reinvent old ideas.  Other times they create whole new movements.  Technology has had a large part in these changes as we have moved from agrarian to industrialization to information and on to robotics.  When the dotcom boom started there was a lot of talk of the death of old business models, it did not happen…then.  The people who said that were not wrong, they were just early.   As I like to say predicting the future is nothing, timing it is everything.

Good Night and Good Luck

Hans Henrik Hoffmann March 18, 2015