Three Internet titans—Google, Apple, and Facebook—are in an epic struggle to dominate your Internet experience, and caught in the crossfire are search, music, video, and other media along with the devices you use for all of these things. Mobile devices with advanced functionality and ubiquitous Internet access are rapidly overtaking traditional desktop machines as the most popular form of computing. Today, people spend more than half their time online using mobile devices that take advantage of a growing cloud of computing capacity. It’s no surprise, then, that today’s tech titans are aggressively battling for control of this brave new online world.
Apple, which started as a personal computer company, quickly expanded into software and consumer electronics. Since upending the music industry with its iPod MP3 player, and the iTunes digital music service, Apple took mobile computing by storm with the iPhone, iPod Touch, and iPad. Now Apple wants to be the computing platform of choice for the Internet.
Apple’s competitive strength is based not on its hardware platform alone but on its superior user interface and mobile software applications, in which it is a leader. Apple’s App Store offers more than 2 million apps for mobile and tablet devices. Applications greatly enrich the experience of using a mobile device, and whoever creates the most appealing set of devices and applications will derive a significant competitive advantage over rival companies. Apps are the new equivalent of the traditional browser.
Apple thrives on its legacy of innovation. In 2011, it unveiled Siri (Speech Interpretation and Recognition Interface), a combination search/navi- gation tool and personal assistant. Siri promises personalized recommendations that improve as it gains user familiarity—all from a verbal command. Google countered by quickly releasing its own AI tool,
Google Now. Facebook has developed an intelligent assistant called M.
Apple faces strong competition for its phones and tablets both in the United States and in developing markets like China from inexpensive Chinese smartphones and from Samsung Android phones that have larger screens and lower prices. iPhone sales have started to slow, but Apple is not counting on hardware devices alone for future growth. Services have always played a large part in the Apple ecosystem, and they have emerged as a major revenue source. Apple has more than 1.3 billion active devices in circulation, creating a huge installed base of users willing to purchase services and a source of new revenue streams. Apple’s services business, which includes Apple’s music (both downloads and subscriptions), video sales and rentals, books, apps (including in-app purchases, subscriptions and advertising), iCloud storage, and payments, has been growing at a doubledigit rate.
As Apple rolls out more gadgets, such as the Watch and HomePod, its services revenue will continue to expand and diversify. According to CEO Tim Cook, Apple has become one of the largest service businesses in the world. This service- driven strategy is not without worry because both Google and Facebook offer stiff competition in the services area.
Google continues to be the world’s leading search engine, accounting for about 75 percent of web searches from laptop and desktop devices and over 90 percent of the mobile search market. (Google is also the default search engine for the iPhone). About 84 percent of the revenue from Google’s parent company Alphabet comes from ads, most of them on Google’s search engine. Google dominates online advertising. However, Google is slipping in its position as the gateway to the Internet. New search startups focus on actions and apps instead of the web. Facebook has become an important gateway to the web as well. In 2005, Google had purchased the Android open source mobile operating system to compete in mobile computing. Google provides Android at no cost to smartphone manufacturers, generating revenue indirectly through app purchases and advertising. Many different manufacturers have adopted Android as a standard. In contrast, Apple allows only its own devices to use its proprietary operating system, and all the apps it sells can run only on Apple products. Android is deployed on over 80 percent of smartphones worldwide; is the most common operating system for tablets; and runs on watches, car dashboards, and TVs—more than 4,000 distinct devices. Google wants to extend Android to as many devices as possible.
Google’s Android could gain even more market share in the coming years, which could be problematic for Apple as it tries to maintain customer loyalty and keep software developers focused on the iOS platform. Whoever has the dominant smartphone operating system will have control over the apps where smartphone users spend most of their time and built-in channels for serving ads to mobile devices. Although Google search technology can’t easily navigate the mobile apps where users are spending most of their time, Google is starting to index the content inside mobile apps and provide links pointing to that content featured in Google’s search results on smartphones. Since more than half of global search queries come from mobile devices, the company revised its search algorithms to add “mobile friendliness” to the 200 or so factors it uses to rank websites on its search engine. This favors sites that look good on smartphone screens. The cost-per-click paid for mobile ads has trailed desktop ads, but the gap between computer and mobile ads fees is narrowing. Google instituted a design change to present a cleaner mobile search page.
Seven Google products and services, including Search, YouTube, and Maps, have more than a billion users each. The Android operating system software has over 2 billion monthly active users. Google’s ultimate goal is to knit its services and devices together so that Google users will interact with the company seamlessly all day long and everyone will want to use Google. Much of Google’s efforts to make its search and related services more powerful and user-friendly in the years ahead are based on the company’s investments in artificial intelligence and machine learning (see Chapter 11). These technologies already have been implemented in applications such as voice search, Google Translate, and spam filtering. The goal is to evolve search into more of a smart assistance capability, where computers can understand what people are saying and respond conversationally with the right information at the right moment. Allo is a smart messaging app for iOS and Android that can learn your texting patterns over time to make conversations more expressive and productive. It suggests automatic replies to incoming messages, and you can get suggestions and even book a restaurant reservation without leaving the chat. Google Assistant is meant to provide a continuing, conversational dialogue between users and the search engine.
Facebook is the world’s largest social networking service, with over 2 billion monthly active users.
People use Facebook to stay connected with their friends and family and to express what matters most to them. Facebook Platform enables developers to build applications and websites that integrate with Facebook to reach its global network of users and to build personalized and social products. Facebook is so pervasive and appealing that it has become users’ primary gateway to the Internet. For a lot of people, Facebook is the Internet. Whatever they do on the Internet is through Facebook.
Facebook has persistently worked on ways to convert its popularity and trove of user data into advertising dollars, with the expectation that these dollars will increasingly come from mobile smartphones and tablets. As of early 2018, over 95 percent of active user accounts worldwide accessed the social network via smartphone. Facebook ads allow companies to target its users based on their real identities and expressed interests rather than educated guesses derived from web-browsing habits and other online behavior.
At the end of the first quarter of 2018, 98 percent of Facebook’s global revenue came from advertising, and 89 percent of that ad revenue was from mobile advertising. Many of those ads are highly targeted by age, gender, and other demographics. Facebook is now a serious competitor to Google in the mobile ad market and is even trying to compete with emerging mobile platforms. Together, Facebook and Google dominate the digital ad industry and have been responsible for almost all of its growth. Facebook has overhauled its home page to give advertisers more opportunities and more information with which to target markets. The company is expanding advertising in products such as the Instagram feed, Stories, WhatsApp, Facebook Watch, and Messenger, although the majority of ad revenue still comes from its news feed. Facebook has its own personalized search tool to challenge Google’s dominance of search. Facebook CEO Mark Zuckerberg is convinced that social networking is the ideal way to use the web and to consume all of the other content people might desire, including news and video. That makes it an ideal marketing platform for companies. But he also knows that Facebook can’t achieve long-term growth and prosperity based on social networking alone. During the past few years Facebook has moved into virtual reality, messaging, video, and more.
Facebook is challenging YouTube as the premier destination for personal videos, developing its own TV programming, and making its messages “smarter” by deploying chatbots. Chatbots are stripped-down software agents that understand what you type or say and respond by answering questions or executing tasks, and they run in the background of Facebook’s Messenger service (see Chapter 11). Within Facebook Messenger, you can order a ride from Uber, get news updates, check your flight status, or use augmented reality to imagine what a new Nike sneaker looks like by superimposing a 3-D model of that sneaker atop images or video. A new standalone app will allow users to stream videos in their news feed through set-top boxes such as Apple Inc.’s Apple TV and Amazon.com Inc.’s Fire TV, as well as Samsung Internet-connected TVs.
Zuckerberg has said that he intends to help bring the next billion people online by attracting users in developing countries with affordable web connectivity. Facebook has launched several services in emerging markets, such as the Free Basics service designed to get people online so they can explore web applications, including its social network. Facebook wants to beam the Internet to underserved areas through the use of drones and satellites along with other technologies. Zuckerberg thinks that Facebook could eventually be an Internet service provider to underserved areas.
Monetization of personal data drives both Facebook and Google’s business models. However, this practice also threatens individual privacy. The consumer surveillance underlying Facebook and Google’s free services has come under siege from users, regulators, and legislators on both sides of the Atlantic. Calls for restricting Facebook and Google’s collection and use of personal data have gathered steam, especially after recent revelations about Russian agents trying to use Facebook to sway American voters and Facebook’s uncontrolled sharing of user data with third-party companies. Both companies will have to come to terms with the European Union’s new privacy law, called the General Data Protection Regulation (GDPR), that requires companies to obtain consent from users before processing their data, and which may inspire more stringent privacy legislation in the United States. Business models that depend less on ads and more on subscriptions have been proposed, although any effort to curb the use of consumer data would put the business model of the ad-supported Internet—and possibly Facebook and Google—at risk. Apple emphasizes its privacy protection features and does not share customer data with others.
These tech giants are also being scrutinized for monopolistic behavior. In the United States, Google drives 89 percent of Internet search, 95 percent of young adults on the Internet use a Facebook product, and Google and Apple provide 99 percent of mobile phone operating systems. Critics have called for breaking up these mega-companies or regulating them as Standard Oil and AT&T once were. In July 2018 European regulators fined Google $5 billion for forcing cellphone makers that use the company’s Android operating system to install Google search and browser apps. Have these companies become so large that they are squeezing consumers and innovation? How governments answer this question will also affect how Apple, Google, and Facebook will fare and what kind of Internet experience they will be able to provide.
Source: Laudon Kenneth C., Laudon Jane Price (2020), Management Information Systems: Managing the Digital Firm, Pearson; 16th edition..