It’s an epic battle for control of the Net, and even of commerce and communications. We’ve never before seen the like of any of these companies: Amazon, Apple, Facebook, and Google. Together, they form a gauntlet preventing others from joining their ranks, even as they turn their sights more and more on one another. How should we think about this formidable four? Alec Ellison of Jefferies, Nielsen’s Steve Hasker, and Internet analyst Mark Mahaney join moderator Eric Savitz of Forbes Magazine to discuss in this session at Techonomy 2012. (Transcription by www.realtimetranscription.com.)
Kirkpatrick: The next session is one that has been anticipated by a lot of people. Get the panelists up here.
Eric Savitz, who is the San Francisco bureau chief for Forbes, is going to moderate it. He’s a great guy to do it. These four Internet colossai and what’s going to happen to them— I think it’s a fascinating subject; a little more down in the trenches of the industry, but I think a bunch of issues that will affect many of the other issues we’re talking about here today. So, Eric?
Savitz: Thanks very much, David.
Here you have them, the four Internet colossai right in front of you.
I want to introduce my panelists. Starting with Alec Ellison, who is the Vice Chairman at Jefferies & Co, the investment bank. He’s been an investment banker for 30 years.
Steve Hasker, who is the President— big title— President of Global Media Products and Solutions at Nielsen, which basically means he is the king of Nielsen Ratings.
And Mark Mahaney, who has, for 15 years, been one of the top analysts on Wall Street in the Internet industry. Recently left CitiGroup.
This is a great panel, and it’s a really good topic. We get to talk about four companies that increasingly are in each other’s business: Google, Amazon, Apple and Facebook. We’re going to talk a little bit about why we’re picking those four and then also about some of the ones we didn’t pick.
Alec, why do you think these four? What makes them unique?
Ellison: Great question. I think they are all four truly platform companies. To varying degrees they are playing in commerce, they are playing in media, they are playing in web services. Most of them either have or are rumored to have a hardware product, either a smartphone or tablet to deliver media and commerce capability. And they have in— not all cases, but most cases— a platform for developing applications. So that gives them a defense ability also an offensive capability to continue to expand into other areas.
Savitz: Is there something about them that gives them extra sort of distance between them and the next set of players.
Ellison: The next set of players. Well, the one that’s conspicuously absent is Microsoft. It’s hard to argue that there’s significant distance, certainly not in market cap. Two of them have market caps that are in the hundreds of billions. One is at 100 and one is at 50 and rising. So I wouldn’t say “distance” per se. But it’s more the range of capabilities that they each have that gives them both this offensive and defensive position in the technology industry.
Savitz: Mark, how do you think about this set of companies and the way they compete? Is there something unusual about this moment in time with this set of companies? Have we seen this kind of thing before, where you’ve got a dominant course of players?
Mahaney: I don’t think there’s anything unusual about this period of time. But at least three of them, probably the Apple too, have established very deep competitive motes around their business. The ability for a new company to start up now and go through multiple years of losing money to establish a distribution, retail network like Amazon has, it’s very hard to see replaced today.
Facebook is a network effects company. Now people may start trailing off of Facebook. They may become less enamored with it, but it’s very hard to see a social network with a billion people recreated in the next five years. And Google, the amount of money that they spent developing search, perfecting and improving their search algorithms, yes, somebody could jump away from them with a click. But still, for somebody to come up with those kind of algorithms, spending in excess of almost $20 billion. Maybe Microsoft could do it. They haven’t had much success to date.
So those three companies have really established themselves as at least for the next five years, which is as long as anybody on Wall Street can think, that’s very hard to see undermined.
Savitz: So, have they kind of sucked some of the competitive opportunities available to the startup community out of the marketplace? Is it getting tougher to compete at the level that— to do, say, what Facebook has done in a fairly short period of time, right? Eight years. They went from nothing to being in this discussion of the most influential players in the Internet.
Can that still happen? Or, because of the wide reach of these companies, is that now less?
Mahaney: I think there’s tons of innovation across the Internet away from those main categories that they’re in, so don’t try to develop the next broad-based social network. Don’t try to develop the next broad mass retailer online. Don’t try to develop the next broad general search engine.
But there’s plenty of innovation and venture capital money going into niche retail sites. Fab is an example of that.
Interesting information, vertical search engines. There’s an opportunity there. And networks that aren’t broad-based but that are based on certain verticals, professional verticals, what have you. I think there’s plenty of opportunities. But for broad-scale players, in those three areas, it’s very hard to see somebody coming in near term to disrupt that.
Savitz: Steve, as you look at this group of companies, is there one area that you think— they compete in so many places, right? They compete on devices, they compete on platforms, they compete on commerce and payments and so on. Is there one or two places where the fight really— that we should be paying the most attention to, that matters the most?
Hasker: Yeah, Eric. Alec mentioned a couple areas that they’re going at it, so to speak, from a competitive standpoint. I think the one that we focus most on is the consumer, and ultimately who will own the consumer. I think question number one is, does it need to be one of the players, or can all four continue to stakeout significant territory, against consumer time and attention.
But within that, the one that we look at at Nielsen for a bunch of reasons is video. Logically, because of our position in television, but also because if you look, for example, in digital advertising and digital business models, almost always it’s video that is the most compelling experience. So the player who ends up owning the video experience, if indeed there is one player to own it, will have a very compelling position as it pertains to the consumer.
Each of them are coming at it from different points of view. Google came at it with a tremendous database of algorithm-driven search, and behavior. Amazon, of course, has all the purchase information, some of the things we bought in the audio world and now video. You know, you can go across. Apple have some of the same thing. Now, Facebook is coming at it from a different angle, which is social-driven search, in a sense.
So they’re all coming at the video space as one example of the consumer behavior from different angles. It’s going to be very interesting to see how that plays out.
Ellison: What Steve is alluding to is, what these four are doing, yeah, they’re rivals with each other, but they’re sucking the value out of other industries. There was roughly an $80 billion print advertising market that got a lot of the value brought online and roughly 80 billion in broadcasting advertising that’s out there that they’re all going after.
Hasker: The tales of disruption is well known. Print is one, the music industry is another, classified advertising, consumer electronics retailing. The stories are well-known.
I think the next frontier is video, and there’s a $90 billion pool, as you say, Alec. The question that many people ask is, will the four— one of the four, the four, or one of the four get the access they need to the most compelling video content. The most compelling video content is that the hardest-to-reach, most valuable audiences find compelling. So you know, a lot of the sort of programming that HBO and Showtime and the broadcast networks and of course the cable networks is an example of that. Sports is an example of that.
One of the things we watch is what kind of access are they getting to that content? As as interesting as cats on skateboards can be on YouTube and other user-generated sites. It’s really that professionally produced content that advertisers find compelling and want to have their brands associated with.
Savitz: So if you handicapped it, do you see one of those four being better positioned than another to get access to that content?
Hasker: I think they are at very different— the evolution of their business model, the depth of their pockets, and the degree to which they’re focused on video. Google are very, very focused on video, having purchased YouTube and really looking to develop that product, spending large amounts of money on their own content is one example.
Apple, it’s obviously a natural for them to come, given their position in music, into video. And we’ve seen some interesting moves there. I would argue that Amazon’s moves are early, but they’re interesting, associated with Amazon Prime and so forth. And then Facebook are only just starting to turn their attention.
So they’re at different points. And as I say, they bring different assets. I wouldn’t be prepared to hazard a guess as to who will win. I think the first question, as I said before, is how many players can we all have delivering video content and video discovery experiences into our homes? And is it more than one? And if so, who is it likely to be?
Savitz: Mark, do you think video is the right place to focus here, or are there other points of competition that you think may be more defining in terms of how this plays out?
Mahaney: Let me try something. The last panel we had here had to do with data, big data. Bigger data. Biggest data. You think about the four companies. Who’s got the most interesting data? Who’s got the largest set of data?
I think the answer is Google, that they’ve got more data than anybody else in the group. And Facebook may come in second, but then I would push you a little bit further and think, well, who’s got the most interesting data? Who’s got the most commercially useful data, coming at it from a Wall Street perspective. People who know what you’ve purchased is one company. What you’ve searched for what you purchase is one company.
Google has always tried to close that loop. They’ve never really been able to do that. Facebook is far, far from closing that loop. They only know you at the top of the funnel. Amazon gets you at the top of the funnel, they’re watching you all the way down, and they get you or understand you, what happens at the end.
I think— not necessarily in total amount of data that they have on their consumers, but with 200 million active customers worldwide— and that’s going to keep growing 25 percent year over year for several years— they’re going to have the richest, I think, set of commercial data on consumers of all four companies. I think.
And they also know what you buy across a very increasingly broad range of products, services, et cetera. That to me is the database winner, of the four companies. That to me is the most interesting one, over the next five to ten years.
Savitz: How do they leverage that data that they have about our transactions?
Mahaney: Well, they leverage it the way that people who want to make money do. They know what you’re interested in, so they put products and services that you’re interested in in front of you. They can service you, feed you, sell you. Basic retail. Low margins, but that’s fine.
Savitz: Alec, what is your— where would you be looking here, in terms of the points of competition that might be sort of the defining –
Ellison: Well, I think the amassing of data is certainly important, but it relates to what I’ll call— what’s the stickiest site? What is the stickiest place the consumers are focused on?
I think to me you have user engagement. Facebook and Google are pretty sticky. Google is still the entry point for many into the web. I think Amazon, to Mark’s point, is playing both an offensive and a defensive game. They are playing offense in terms of understanding you more and more. And on the defensive side, they just keep building their scale so that nobody can ever compete directly with them. That’s what Wal-Mart did, in terms of brick and mortar. Amazon’s building brick and mortar. It’s at their distribution sites around the world, which are tens of millions of square feet now.
So I think stickiness is key. And then— look at those three. Apple, I think is the weakest from a stickiness perspective. It’s got the most quote, “valuable brand.” It’s the most valuable coming in the world. But it has to maintain its innovation edge in order to continue its position in the marketplace.
Savitz: So do you –
Hasker: Just to add to that, I think the other thing that is probably obvious to everyone, but two of the four players have increasingly valuable real estate in a mobile environment with operating systems that are becoming more and more pervasive as every day goes by.
So not to say that the other two can’t catch up in that direction, but the other two have some challenges to do so.
Very significant investments in IOS, very significant investments in Android. And as devices explode, as was talked about in the last panel, and consumers are ambivalent as to where they are accessing digital content, that position is earning the operating system could and should be an interesting state going forward.
Savitz: I’m curious when you look at the comparison of those four companies, Facebook, to me, in some ways, sands out as being less diverse. They’ve got their fingers directly in fewer of these pies than the other three. They have a smaller market cap but higher sort of valuation metrics.
Does Facebook deserve to be in this group? And do you think that Facebook extends its reach— you know, there’s been speculation over time about Facebook is going to get into the search business, Facebook is going to get into— they are going to do a Facebook phone was sort of a hot river for a little while. How do you look at that?
Ellison: It’s younger so it has its fingers in fewer places.
I look at what is the market saying. I don’t just mean the equity. The Facebook is a 55 percent EBITDA margin company, 55 percent. Amazon is at 6 percent. Not surprising as a retailer. Google is 44 percent.
Again, when you’re above that 44 percent level, which very few companies are in any industry— in tech it’s Microsoft, Oracle, hard to name many others. But Facebook is at 55 percent.
That tells you they have a tremendous position vis-a-vis their customer base of the profits they’re able to generate, which can fund them if they maintain their aggressiveness and speed into other areas.
So they’ve been around less time, but that stickiness and that inherent position relatively to their— relative to their customers, I think, means they should very much be in this group.
It begs the question, when you look at Amazon’s margins, like Steve was saying, it’s a retailer So it’s different. But will it be able to be as a aggressive in funding growth into new markets?
Savitz: So that kind of leads me to a question that I want to— I know you’re smiling, Mark, but you know where I’m going, I think.
It raises a question I have when you look at these four companies and think about their vulnerabilities and their relative points of strength, I would like each of you to talk about, is there one of the four that you would have the most worries about, or that you think is maybe— who is the strongest of the four or maybe underrated in one way or another? Think about the relative strengths of the four.
Hasker: I would touch on that, but add a comment to Alec’s point. I think Facebook definitely deserves to be in this conversation and in all of our conversations as it pertains to the consumer, as it pertains to data and so forth, for a couple reasons.
Firstly, they have a billion people using this service and they’re using it a lot. Engagement varies, the fastest growing audience group in the U.S. is now grandparents, right? Because it’s very heavily a photo-sharing site. Sort of starts to show you the power of the product and the service. 100 million people in the acchipelago of Indonesia. 65 million Indians using Facebook now, likely to be 200 in a couple years’ time. So one is just the pure scale of the service.
The second— and Alec touched on it— is the access to the hard-to-reach audience. These are people who are not spending a lot of time on more traditional forms of media and information services, and so there’s a real scarcity there.
Thirdly, it’s a companion in a lot of ways. Many of us are looking at how to reach consumers in different ways. Very often Facebook is used in conjunction with something else, and that, I think, provides lots and lots of opportunities.
And last but not least, maybe most interestingly, I think the idea that if Alec and I are friends on Facebook and somehow Facebook are able to get a message to me which says Alec likes Coke –
Ellison: Coca-Cola.
Hasker: Well, you are a banker, so I just— probably worth clarifying.
Savitz: I see dangerous tweets happening.
Hasker: As a humble researcher, we don’t understand terms like that.
But the point being, the fact that Alec likes Coca-Cola is much more compelling to me than Coca-Cola likes Coca-Cola. I think Facebook has been very transparent about this in the last couple quarters. I don’t think they’ve fully cracked a way to sort of harness that peer recommendation and get those products in month of me, but there’s value to that social network and there’s value to harnessing that and putting products and services in front of me.
I think when you put those four things together, they are the youngest, they’ve had an interesting year, they are in the spotlight. But those are very, very important assets.
Ellison: Well, Facebook Gifts is an attempt to do just this. It’s new, but that’s exactly what the intent is.
Savitz: Well, come back to my previous question. So Jeffries, you mentioned to me, actually has buy ratings on all four of these stocks?
Ellison: We do.
Savitz: Is there one that stands out either at the high or low end of enthusiasm or risk, how would you –
Ellison: Well, I’ll give me view as opposed to the official firm views. Again, we do have buyers on all four and we’re— on all four mainly because they are consuming other industries.
If you add the four together, depending on the week, you’ve got 8 to 9 hundred billion dollars of market cap. So you’re talking 6 percent, give or take, of the entire market cap in the U.S. Extraordinary kind of statistics, so it’s consuming these industries, going after broadcast, advertising, as Steve was describing.
But I think from a vulnerability standpoint, Apple, to me, is the most vulnerable. First, it has to maintain this innovation edge. The engagement isn’t so much with the Apple device, it’s what’s on the device.
There’s a lot of hay made now about the Samsung devices. The next thing is already in the Samsung device and those of us can remember that Apple did go through a time where it almost went out of business.
Michael Dell famously said in the mid ’90s, they should just return the cash and fold the place up. Came up with new products, new capabilities. it Has to keep doing that.
I also think that the retail store network is seen as a tremendous advantage. It was pressing for Apple to build it because it provided a place to go for people to experience the technology, to engage with it and to purchase it.
But there was once the IBM marketing— the IBM network across the world was what gave IBM its tremendous position for two-and-a-half decades and it became an albatross in the ’90s, and Lou Gerstner famously figured out a way to make it a competitive advantage, again, by going into the services business.
Well, the Apple Store network become like the Disney Store— who has been to a Disney Store recently?
Who went 15 years ago? Probably all the hands go up.
If you maintain competitive— excuse me, innovative products, then the network of stores is an advantage. If you start to lose it, it becomes an albatross.
Savitz: Do you guys agree with that?
Hasker: I agree with what Alec said. I wouldn’t— the two things we look at— unlike these two guys, we don’t pick stocks, firstly.
Secondly, Nielsen work with all four in pretty meaningful ways. But the two things we look at going forward as to who’s likely to be successful or well positioned is, one, demographics. Very, very— we’re seeing it in the recent election. Very fundamental demographic shifts. We are all aware of them and ask the question which one of these firms is better placed in demographics.
The second one is international. If you sort look at total GDP growth and where it will come from, it will be outside of the U.S.
And I suppose on the second one, these guys— I’m not— they guys may know much better than I do, but certainly Google was a global company, as is, increasingly, Apple and Facebook, have a very meaningful proposition, as I touched on a second ago across the world.
I have a perception that Amazon is less so, but I don’t know.
Ellison: It is less than. Google is 55 percent non-U.S. now.
Mahaney: I know I’m doing a disservice to Apple. I’ve spent 15 years covering Amazon 10 years covering Google, three years privately and publically covering Facebook.
And I don’t cover Apple so I’m missing that a little bit; although, I have just as many Apple products at home as I am sure everybody in this room has.
The not knowing Apple as well in terms of management teams, the one question has to be over Facebook, the quality of the management team.
David has spent more time with Mark Zuckerberg than anybody else has, which is a bit of a problem. Not too many people really know this person. And, by the way, you don’t know how good these executives are for five or ten years.
Jeff Bezos wasn’t clear that he was a quote, unquote, “genius.” And there really are genius’s out there, but it wasn’t clear that he was an outstanding executive and visionary for 10, 15 years.
Same thing can be said about the Google guys. Same thing probably about Steve Jobs. It takes a while to show that you can see trends, execute well against trends and come out generating a lot of cash to shareholders in the Wall Street perspective.
I think about the biggest trend that’s gone through the Internet phase in the last five years has to be mobile. The fact that we’ve gone from mobile usage being less than 1 percent of total usage to 20 to 30 percent of in some cases, and even higher.
That major trend— and I look at what Apple’s done. Apple and Google drive that trend and fully exploited that trend. Those two management teams deserve credit for that. Amazon, too, to some extent with these Kindle devices. They changed the way that people read books. More than 50 percent of all books are on the eReader devices. Amazon drove that trend. And they’re actually a huge beneficiary of mobile.
The question I have about Facebook is I think Facebook’s margins are too high. This company needs to be much more into investment mode than it is now because there’s a lot of opportunities, but they don’t really know what the future is.
I think we got proof of that during the IPO process when they couldn’t even figure out the next quarter or two. But it’s a very hard thing to figure out. Who knows what Facebook is going to be like three or five years from now. I look at what they did in mobile. I think they under resourced mobile. They were late with tablets, their iPad app, and I think they made some bad bets, and they acknowledged this publicly. But I think they didn’t make enough bets on mobile.
I like the stock. I recently upgraded at my prior firm at 1950. But that’s the big question mark of these four companies. The one with the question marks on management team has to be Facebook.
Savitz: Is there one— I know, Mark, you talked some about Amazon. I can’t help but thinking that Amazon is the one that is a little bit under the— the underrated player here in some ways.
They have a high valuation for their stock. That’s always been the case for Amazon. But when you look at the opportunities that Amazon has and you look at the successes they’ve had in stretching their business, and, in particular, their willingness to lose money as they introduce new businesses, are they maybe like the most dangerous competitor in some ways of the group?
Mahaney: They are probably the most disruptive company of those four. I think, they are in five or six businesses now, core retail. They are a marketplace like Ebay. They are a devices company, they are a content company, they are a cloud infrastructure company. You hear IBM putting out press releases about how its products compete with Amazon.
What? How did that come about?
And, finally, they could be an advertising company. Amazon certainly has the traffic and the knowledge of the users coming to the site to monetize those interactions with advertising if they want to.
Almost all of those categories— or at least in three of them— they are demonstratively gaining market share. They are run by the same management team. I think a low price, a low cost strategy works very well for the long-term.
You really develop very sustainable motes around the business when you run it at low margins. Very few companies want to come into Amazon’s core business and try to compete with them at 1 percent margins, 2 percent margins. That’s unattractive to most investors.
Savitz: I want to come back to— in essence, the formation of the basis of this panel, you know, the first time I heard anybody talk about these four sort of the Fantastic Four or Fab Four— not counting the original Fab Four.
It was phrased by Eric Schmidt. I think it was at the All Things D conference, maybe. And he talked about the four, and he specifically left Microsoft out. I wonder if we’ve kind of let one of the players form the basis of the discussion in a funny way.
I wonder if you want to talk a little bit about Microsoft. Why are we not talking about Microsoft? Microsoft plays in mobile, they play in tablets, they play in content, and they play in many of the places where all of these guys are; plus they’ve got giant piles of cash and more revenue than— well, not more than Apple. But more revenue than the other players.
How do you guys think about Microsoft, and should they be part of this conversation?
Ellison: I think they were omitted. That— well, there’s obviously an agenda that Eric Schmidt had in omitting them. But there is a distinction in that all four of these have a degree of consumer engagement. We’ve discussed that it varies. But they all have significant amount of engagement and stickiness. Whereas Microsoft’s stickiness is much more in the enterprise.
Microsoft makes over 100 percent of its profit from Windows and Office. We’re all familiar with Office, but it’s in the consumer world. That’s why they get left out.
Have they been making moves to be seen in this group? Absolutely. Through Windows Mobile.
But it’s the three or four mobile operating system and it’s hard to expect there will be more than two that win. It’s more in the hardware for the first time, literally, in the last several months.
On the surface it looks like a great product. We’ll see what the sales are over the holiday season. And, again, entering with a phone as well. That’s why they were omitted. It’s not that they can’t potentially enter the group. They’ve been less consumer-oriented.
Savitz: In video, they have a play, particularly with Xbox. Maybe talk a little bit about that.
Hasker: Yes, we also work with Microsoft. We share their excitement with the Xbox as a platform. You look at the number of installed Xboxes with a two-way capability. You are looking at the largest or second largest cable MSO in the country.
The question is whether they can segue that into a really interesting position to own that consumer across all kinds of different experiences.
At the moment they have obviously started on the video game experience, and they’re starting to do that. The Xbox devices are multifunctional. You know, they’re beefing them up with every release. That, to us, looks like the most interesting piece of real estate they have in the home. And the question is, what is the interaction activity with the Surface and how do they work that through so they provide the consumer with a seamless experience?
And they can sort of start to stakeout that position.
Savitz: Mark, were you recommending Microsoft?
Mahaney: I never covered Microsoft. It gets out of the Fab Four because it’s more enterprise oriented. Probably unfair. Probably should be in there.
Savitz: So if you look at, say, three years now or at Techonomy year 5, 6, maybe, 3, 3. We’ll be back in the desert again.
Is there a company that’s threatening to nose its way into the discussion, and is there another company that maybe they’re not quite there yet but could be part of this— part of this group that’s sort of coming to dominate the Internet and communications world?
Mahaney: There must be. There just has to be in the consumer Internet space where the switching costs can be so low. There has to be. So what are the big platform place out there?
Maybe a Twitter. There’s so much that needs to be done there, though, before they become a viable platform. The usage interface needs to develop so dramatically. Nevertheless, there’s a heck of a lot of usage there.
When we were talking beforehand, we wondered if maybe there’s some Internet companies. Maybe there’s some 10 cent in China. You know, Maybe we should be considering that.
What I find so interesting about these U.S. Internet companies is that none of them are U.S. Internet companies. They all have at least 50 percent of their profits, revenues, user base outside the U.S. So they really have been able to, for a variety of reasons— probably cultural reasons— expand better than almost any other company.
The doesn’t mean we can’t be surprised 10 cents generating a huge cash profile. They probably have to do a lot of huge acquisitions, but that may be one of those Fab Five companies in the future.
I’m sure there will be another disruptive company of this size in the next five years. Just as we didn’t know anything about Facebook as recently as five years ago, seven years ago.
Kirkpatrick: I want to get my mic on. Or somebody bring me one.
There’s a lot of equivalency that’s been discussed about these companies and a lot of presumption that they are heading into the same markets, and yet there’s one company that is highly differentiated in a key way, which is that Google is the only one that has been prosecuted for antitrust. And it’s been prosecuted in many geographies, and none of the other three have been subjected to that. So the question is should some of the other potentially face that; or is it illogical for Google to face it? Or perhaps a third opportunity to answer is, is Google unduly concentrated in one business and, therefore, that’s why it is justifiably the only one facing this?
Because, to me, it’s a very interesting question. If these companies should be talked about in the same breath, that it’s such a big difference.
Mahaney: That’s the major risk for Facebook and for Google. I’m sure that within the next ten years, Apple and Amazon are going to face that kind of scrutiny as well. It just happens with large companies.
Google has such an ability to influence where traffic is. And when they do these things with Google Places and they disrupt companies like Yelp and Trip Adivsor, it’s almost blatant. It’s at least a use of power, if not abuse of power.
Facebook has these dramatic privacy issues they’re going to have to confront. They have this massive database. On the other hand, it’s is a massive database. It’s data that a lot of us don’t want to have monetized. I would imagine the next one to be scrutinized, if that’s the right word— investigated, will be Facebook. But along the way –
Ellison: I don’t think Amazon will be because it’s competing with the Wal-Marts of the world. More, the entire retail and distribution system. The brick and mortar players have online capabilities as well.
Mahaney: Department of Labor.
Ellison: Not from an antitrust perspective.
Savitz: Although, the other legal question here that comes up right is patents. We’ve seen them— there’s patent risk for some of these companies. They’ve been suing each other kind of serially in jurisdictions all over the place. Although very interesting, last night Apple and HTC announced that had they had settled their patent litigation in all jurisdictions, reached a ten-year license. So maybe we will see a sort of gradual winding down.
Hasker: I defer to the two guys on my side, the Wall Streeters. But there seems to be two significant value creation opportunity for investors.
One, if you own a patent that the rest of these guys need, it doesn’t matter what your business looks like, that’s big opportunity. And the second is the start-ups that get some traction in the minds of consumers and there’s a feeding frenzy amongst the big players to get ahold of them and therefor take them off –
Ellison: Like the next Instagram.
Hasker: Exactly.
Ellison: That raises a great point. Who is going to be at Techonomy 6, three years who might prevail? Go out ten years. I would hazard that it’s a company that is using a new technology that isn’t yet economic.
There are new social networks. How many of you remember Six Degree? Probably not many of you. I’ve got some hands. That’s good.
They are at a million and a half users right before and they went bankrupt. As they were about to go bankrupt, what they were debating is can we afford to have every member have his or her picture on the site?
Now, Facebook doesn’t exist unless storage costs come down where you can put up pictures. Facebook is uploading two-and-a-half million pictures a day now, users on Facebook. The storage costs have dropped by 99.9 percent over a decade.
So what technology— maybe it’s voice recognition. So that creates the opportunity for a— it creates a technological shift that gives users a different way to engage with the Internet.
Apple, obviously, is focused on that with Siri. But I think Siri is a great example of a good potential Saturday Night Live skit.
Savitz: That can’t possibly be a good thing. Why don’t we take a couple of questions from the audience. We are running into— one or two, David says. We are standing between— yeah, we have it in the back.
Kurzweil: Hi, this is Ray Kurzweil.
So in response to who might be a player in Techonomy 16, there is a player I think that’s very well-positioned, which was mentioned tangentially which is not considered an online company at all.
Amazon is considered the 900-pound gorilla in online retail, but Wal-Mart is ten times bigger. They are not asleep at the switch. They can see the direction that retail is headed. They can gain all of these elements of the stack, the platform, all the different types of media very, very quickly— there are ways to do that— and be a very powerful player. They’ve got distribution everywhere. Actually, dwarfs Amazon. So I would be interested in a reaction.
But these online companies are not going to sit there just watching this transformation.
Hasker: I will give you one thought on that, Ray. I think if you look at why do the major, extremely well funded, stocked with talent corporations often not adapt quickly? It’s because they’re going to eat their own lunch.
I think you hit upon it with the distribution asset. That’s where a lot of their costs lie. And that’s actually an asset you as you go into the digital world. It’s not the same kind of millstone around the neck that the record labels faced, you know, that the newspapers faced, and so on and so fourth, in terms of protecting a business model. I think that’s an interesting one.
Savitz: I would add that I talked to someone from Wal-Mart last a week or two ago that mentioned that they were going to expand their presence in the valley by 50 percent over the next 12 months. So they’re coming.
We can take one more over there.
Boncheck: Mark Boncheck (phonetic) with Orbit.
You talked a lot about content and commerce as competitive arenas. I wonder if you could speak about payments.
So there’s a sumo wrestling match going on between the credit card companies, Google Wallet, the Telcos over the demise, perhaps, of the plastic card moving to mobile.
Apple and Amazon have hundreds of millions of credit cards, Facebook doesn’t as much. Is it moving in that space? How does payments factor into this evolution?
Mahaney: I think payments is one of the most interesting areas of innovation now. It’s where there’s a lot of— obviously, a lot of investment.
My slight concern is that we had enormous amounts of investment into the local opportunity a few years ago, and that’s been investment bust number one of the recent IPO cycle.
And then there’s a lot of investment into the social gaming space in the Internet and venture capital word. And that was investment bust number 2 out of the recent IPO cycle. They can still come back.
I wonder about payments. Some of the direction that payments are going into, I wonder if they are— there’s investment into problems that don’t exist. I think about the in-store payments solution. I’ve spent a lot of time using Square in stores. I feel cool when I do it, but I didn’t really save myself any time. Didn’t get any discount. Got nothing.
So I wonder the amount— not to mention that particular company, but just there’s a lot of investments in that area and I wonder if there really is a problem that’s being solved.
That’s all said, Ebay is extremely well-positioned in terms of payments online. They’ve never been materially impacted. And as payments go— as commerce goes mobile, there is a chance for them to really have a very large share of all the payments— of alternative payments, that 10 to 15 percent of all payments.
But whether there’s going to be a dramatic disruption of the 85 percent of all payments, I don’t know. I’m skeptical that there’s something fundamentally broken there. I would love to be corrected.
Ellison: I think payments is a little bit of a Trojan horse. It’s not the direct industry. You target the consume. Like print advertising or broadcasting advertising or even transportation with Google’s automobile. Payments is an enabler to get into other industries, be it financial services or parts of the retailing world.
So it’s— I don’t think it has the volume of dollars to go after as some of these other markets do.
Savitz: I think we are beyond out of time.
>> He’s been waiting.
>>
Ishmael: Sukumba (phonetic)Ishmael (phonetic), Lagos, Nigeria, we talk about Africa as the next frontier, and there is a lot of talk of 140 million users on the Internet.
Of the four players we are talking about, Amazon is the one who seems least into the market, and is certainly the most unrecognized with the brands. And related to Ray’s question with Wal-Mart coming in and recognizing the continent as a place to tap a billion consumers, can you comment on Amazon’s potential role on the continent or not?
Mahaney: I will be real quick. I thought, Ray, somebody else answered your question. I thought in terms of the long-term risks for Amazon, there have always been the potential for multi-channel retailors— really good, innovative, multi-channel retailers to cap Amazon’s long-term market share.
I’m surprised that Amazon doesn’t have distribution facilities on the ground in Brazil. It doesn’t have distribution facilities on the ground in India, and I’m somewhat surprised they don’t have them on the ground in parts of Africa as well. The challenge that Amazon has is when they— actually, I bet Amazon web services has probably got a reasonable presence in Africa. But in terms of a physical presence, it’s a little harder. I guess you need good payment solutions, live in whatever the market is, and you need decent infrastructure. I know that means a lot of markets are near term off the market.
But for a company that’s is as long-term oriented as Amazon, I’m surprised they haven’t made more of an effort in some of those markets, including Africa.
Savitz: With that, we’re about out of time. Thank you, guys.
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