Facebook investors brush off leaked $5 billion fine

It has been widely reported that Facebook will receive a record fine for privacy violations, but investors seems strangely pleased about it.

All the usual-suspect business papers seem to have received the leak late last week that the US Federal Trade Commission voted narrowly to fine Facebook $5 billion for data privacy violations related to the Cambridge Analytica thing. The FTC, like the FCC, has five commissioners, three of which are affiliated to the Republican party and two the Democrats. As ever they voted on partisan lines, with the Democrats once more opposing the move.

The FTC has yet to make an official announcement, so we don’t know the stated reasons for the Democrat objections. But since that party seems to have decided it would have won the last general election if it wasn’t for those meddling targeted political ads, it’s safe to assume they think the fine is too lenient.

Just because the Democrats have a vested interest, that doesn’t mean they’re wrong, however. Of course Democrat politicians have criticised the decision, but many more independent commentators have noted that the fine amounts to less than a quarter’s profit for the social media giant. Nilay Patel, Editor in Chief of influential tech site The Verge, seems to speak for many in this tweet.

That Facebook’s share price actually went up after such a big fine initially seems remarkable, but all it really indicates is that Facebook had done a good job of communicating the risk to its investors, so a five bil hit was already priced in. The perfectly legitimate point, however, is that as a punishment one month’s revenue is unlikely to serve as much of a deterrent from future transgressions.

Patel seems very hostile to Facebook, stating in his opinion piece on the matter “Facebook has done nothing but behave badly from inception.” A lot of this bad behaviour consists of exploiting user data, but what is really under attack seems to be Facebook’s core business model and, to some extent, the whole-ad-funded model on which sites like The Verge rely.

Debates need to be had about the way the Internet operates and monetizes itself, but identifying Facebook as a uniquely bad actor when it comes to exploiting user data seems disingenuous. Laws and regulations are struggling to catch up with the business models of internet giants and there are many other questions to be asked about how they operate.

The fact that Facebook’s share price has now largely recovered from the Cambridge Analytica scandal of a year or so ago, as illustrated by the Google Finance screenshot below, indicates that investors consider these issues to be just another business risk, to be weighed up against obscene profits. While we have always considered the scandal to be overblown, it also seems clear that, as a meaningful punishment, even a $5 billion fine is totally inadequate in this case.

Facebook share price July 19

UK ‘losing momentum’ in pursuit of digital utopia

A scathing report from the House Committee on Science and Technology has suggesting the Government has lost its way on its quest to evolve the UK into a digital society.

There are positive steps being made, though the Committee has pointed to several flaws, including a lack of leadership. The general message from the Committee of one of unstructured, inefficient progress and ineffective programmes. It doesn’t paint the prettiest of pictures for a country which so proudly (and regularly) preaches its leadership position in the global digital economy.

“The potential that digital Government can bring is huge: transforming the relationship between the citizen and the State, saving money and making public services more efficient and agile,” said Norman Lamb, Chair of the Science and Technology Committee. “However, it is clear that the current digital service offered by the Government has lost momentum and is not transforming the citizen-State relationship as it could.

“Single unique identifiers can transform the efficiency and transparency of Government services. The Government should ensure there is a national debate on single unique identifiers for citizens to use when accessing public services along with the right of the citizen to know exactly what the Government is doing with their data.

“In the UK, we have no idea when and how Government departments are accessing and using our data. We could learn from the very different relationship between citizen and the state in Estonia.”

The Government Digital Service is a unit in the Cabinet Office tasked with transforming the provision of online public services. The GDS was set-up in April 2011 with a mantra of ‘Digital by Default’ to create a new culture and baseline for the UK economy and society. Unfortunately for the GDS, the report suggests there is still too much of a reliance on legacy technologies, while a lack of leadership in the department is faltering progress.

For those who are currently in charge of the department, the emergence of this report should be viewed as even more worrying. The Committee suggests that since the departure of former Minister for the Cabinet Office Francis Maude, and the subsequent resignation of several senior civil servants, there has been ‘slowing’ momentum, pointing towards international rankings where several countries have overtaken the UK in digital preparedness.

Another point which has been raised in the report is the absence of a Chief Data Officer. The appointment of such an individual has been a commitment from the Government since 2017, though it seems other issues have taken priority.

There are various other issues raised by the report, including a lack of a centralised strategy to deal with cybersecurity, though the overall tone of the report seems to be focused on a lack of action. The Government has been preaching the benefits of the digital society, promising overhaul of departments and a new relationship with data, though little of this seems to have translated to action in public sector departments.

In proposing the introduction of ‘Digital Champions’ in each department, the Committee are seemingly hoping good intentions and proclamations lead to real-world changes. However, the risk of the ‘Digital Champion’ is one which every business will know. Appointments will have to be made, but appropriate power must be allocated to the individual to ensure changes are forced through. There are too many examples of meaningless job titles which result in zero impact to the organization.

Perhaps the biggest issue which has been highlighted is a shortage of skills in the various departments and a lack of data-sharing between the departments or with enterprise and the general public. Estonia has been used as an example of the success of an open-data model and without this open approach the foundations for a data-economy cannot be created.

Ultimately, this is a report few will be surprised to see. Public sector organizations generally have to be dragged through any transformation strategy, and without driving leadership at the top, change will not filter down through the various departments. New leadership is perhaps needed and new roles with power need to be created; left to create its own fate, the public sector will not change.

France next on the list to be teased with Trump’s tariffs

The United States Trade Representative (USTR) has opened an investigation into France’s digital sales tax, a move which could lead to the European nation facing trade tariffs.

The digital sales tax in France has been viewed as a means to force internet companies to play fair. The creative accounting practices of these companies has ensured nominal tax has been paid to various European states, and France has had enough. The proposed tax has passed through the lower parliamentary house, the National Assembly, and is expected to get the final thumbs-up today from the Senate.

As a result, US Trade Representative Robert Lighthizer has announced the launch of an investigation under Section 301 of the Trade Act of 1974 of the Digital Services Tax (DST) into the French government. This is the very same tool used by the Trump administration to justify the introduction of tariffs against China due to the alleged theft of IP.

“The United States is very concerned that the digital services tax which is expected to pass the French Senate tomorrow unfairly targets American companies,” said Lighthizer.

“The President has directed that we investigate the effects of this legislation and determine whether it is discriminatory or unreasonable and burdens or restricts United States commerce.”

What is worth noting is that while many US companies might find themselves paying more tax, this is not necessarily a move to raid the US economy. This tax has been directed towards all digital companies who abuse the international tax system to the detriment of the French government and society irrelevant as to their nationality, it just so happens the US dominates the internet industry.

Many will view the French move as a gallant effort to hold the internet economy accountable, though it seems the US does not feel the same way; its own economy and society does of course benefit from the tax skulduggery.

The suggestion of the US imposing tariffs on the US comes two days after President Trump declared Indian tariffs on US goods should be a thing of the past.

The tax itself has been in the pipeline for some time, as European nations have become increasingly frustrated by the taxation strategies of the digital economy. Companies such as Google, Facebook and Amazon have been shifting profits freely throughout the world to ensure lower taxation rates are paid. This move from France, to impose a 3% sales tax on revenues realised within its borders, seems like an effective counter-punch.

What is worth noting is it is not just the US firms who are abusing this taxation system. Sweden’s Spotify is another which has played the system well. In the UK, as an example, the company reported revenues of £444 million over the course of 2017 but paid £891,425 in tax as it only reported advertising revenues in the country. Revenues associated with the ‘Premium’ subscription product were moved to Sweden where it could pay less tax.

France is not alone with its frustrations either. The UK is another nation which is considering its own digital tax reforms, while the European Commission attempted to pass bloc-wide rules recently. These rules were blocked by the likes of Ireland and Luxembourg, two countries who benefit significantly from the fleecing of other nations.

Now onto the US response. Section 301 and related provisions of the Trade Act offer the USTR the opportunity to investigate what it or the White House deem as a foreign country’s unfair trade practices. There will be a public consultation and lobby efforts from Silicon Valley and should the USTR conclude France is unfairly persecuting US business, tariffs could be directed towards imported cheese and garlic.

Tariffs are a popular weapon for Trump and the White House hacketmen on the international trade scene, as it is becoming increasingly common for US diplomats to huff and puff, while banging their chest and showing off their biceps when things don’t go their way.

Unfortunately, the US doesn’t really have a leg to stand on here, though the presence of logic will not persuade the hawks from their flightpath. Internet companies, all over the world for that matter, are taking advantage of a dated taxation system which allows them to grow bank accounts without recontributing to the country which has fuelled this prosperity. There is little which can be said to counter this position.

Interestingly enough, the move could spark wider tensions. The relationship between the White House and the European Union is already stressed and targeting a single member state might not be received well by the bloc. The US feels targeting a single member state is legitimate, though there might well be a bigger conversation to be had in Brussels.

With the clouds of tariffs already lurking above the European automotive industry, the US might find itself with another trade disagreement on its hands before too long.

UK launches competition probe into digital advertising market

The UK Competition and Markets Authority wants to know if the digital advertising market is being corrupted by internet giants like Google and Facebook.

The investigation is being called the ‘Online platforms and digital advertising market study’ and it will look into the following:

  • To what extent online platforms have market power in user-facing markets, and what impact this has on consumers
  • Whether consumers are able and willing to control how data about them is used and collected by online platforms
  • Whether competition in the digital advertising market may be distorted by any market power held by platforms

So this seems to be a combination of a monopoly investigation and an audit of how digital platforms are handling personal data. The dominance of the Silicon Valley platforms over the digital advertising market seems clear, so the question is whether they abuse that dominance to unfairly crush competition. The matter of data privacy seems secondary, especially since there are already loads of similar investigations happening around the world.

“It is our job to ensure that companies innovate and compete,” explained CMA Chairman Andrew Tyrie. “And every bit as much, it’s our job to ensure that consumers are protected from detriment. Implementation of the Furman Report should help a lot. As part of the work announced today, we will be advising Government on how aspects of Furman can most effectively be implemented.

“Much about these fast-changing markets is a closed book to most people. The work we do will open them up to greater scrutiny, and should give Parliament and the public a better grip on what global online platforms are doing. These are global markets, so we should and will work more closely than before with authorities around the world, as we all consider new approaches to the challenges posed by them.

“The market study will examine concerns about how online platforms are using people’s personal data, including whether making this data available to advertisers in return for payment is producing good outcomes for consumers,” said CMA Chief Executive Andrea Coscelli. “The CMA will examine whether people have the skills, knowledge and control over how information about them is collected and used, so they can decide whether or not to share it in the first place.”

While they’re at it why don’t they do an investigation into how many people read the terms and conditions of using a service, let alone understand them. While there can be little doubt that online platforms have been very effective at monetising third party data, anyone who uses them for free and then claims to feel exploited is being disingenuous. Much more interesting will be the measures taken if they’re viewed as a harmful monopoly.

Indian companies to be punished for Huawei business

India is the latest country to be dragged into the US/China conflict as the threat of punishment is directed towards any companies who work with Huawei.

According to the Economic Times, any company found to be supplying components or products to Huawei, or any affiliated company on the US Entity List, could face regulatory penalties. Although the White House has focused on crippling Huawei through placing limitations on US companies, it seems the US Government feels it needs to spread its wings further.

“Any Indian company which will act as a supplier of US-origin equipment, software, technology to Huawei and its affiliates in entity list could be subject to penal action/sanction under US regulations,” said Telecoms and IT Minister Ravi Shankar Prasad in Parliament this week.

Although Huawei’s entry onto the Entity List, a list of companies which US firms are banned from working with, has had a notable impact on the Chinese firm’s business, it seems the consequences have not gone far enough. Huawei has suggested smartphone shipments will certainly take a hit, but the company is still functional, seemingly much to the distaste of US officials.

Last year, the US dropped an economic dirty-bomb on ZTE and it almost destroyed the firm. ZTE’s supply chain was unhealthily concentrated in the US leading to the distress, though as Huawei’s supply chain is much more diversified, the same action has not brought the same result.

Perhaps this is another step to add further distress to Huawei. If the US Government places restrictions on the companies who supply Huawei, irrelevant to their nationality, it might have a better chance of hurting the Chinese vendor.

That said, the impact on Huawei might just be a pleasant by-product of a dispute between the US and India. Like China, Mexico and Canada, India has got its own tensions with the US this time concerning data localisation.

Last month, rumours emerged that India would be the latest target of the US. India currently has laws in place which force foreign companies to store data on Indian consumers and businesses within the borders. There are other countries who have similar laws, but the US does seem to have some leverage over India.

H-1B work visas allow an individual to enter the US to temporarily work at an employer in a specialty occupation. Although there are no official quotas, it is believed Indian citizens account for as much as 70% of the H-1B work visas which are handed out each year. If localisation rules are not relaxed, the US has threatened to curb the flow of visas into India.

What will interesting to see is whether this is a strategy which is rolled out globally for the US Government. If it holds all of Huawei’s suppliers who use US components, products or IP in their products to account, there will be a varied list. This might be a strategy to further cause distress to Huawei, though we suspect it could also be used as a bargaining chip in the larger trade discussions.

Walking the fine line between innovation and accountability

Almost everyone will agree the technology industry needs to be held accountable through regulation, but we are starting to wonder whether the sticky fingers of bureaucracy are getting too involved.

In today’s world, regulators and governments can’t do much right. Industry has proven it cannot be trusted in the light-touch regulatory environment of yesteryear, while the red-tape mazes woven by bureaucrats have often create significant challenges of their own. It is an equation which walks the tightest of tight-ropes, and we wonder whether civil servants are starting to over-compensate.

The latest example involves Facebook and the creation of its own cryptocurrency. In a letter from the House Subcommittee on Financial Services, Congresswoman Maxine Waters, who acts as the subcommittees Chairwomen, has asked Facebook CEO Mark Zuckerberg to pause developments on Libra until appropriate investigations have been concluded.

“Because Facebook is already in the hands of over a quarter of the world’s population, it is imperative that Facebook and its partners immediately cease implementation plans until regulators and Congress have an opportunity to examine these issues and take action,” Waters stated.

“During this moratorium, we intend to hold public hearings on the risks and benefits of cryptocurrency-based activities and explore legislative solutions. Failure to cease implementation before we can do so, risks a new Swiss-based financial system that is too big to fail.”

Some might suggest this is a sensible move to protect consumers while others will point to an already bolted horse; cryptocurrencies have been operating for some time now. This is not necessarily a reason not to investigations but asking a single company to pause its R&D plans, as opposed to the segment on the whole, seems rather heavy-handed.

Of course, what is worth noting is that Facebook is a company which should be under the scope of scrutiny more than others. Numerous scandals over the last two years have demonstrated this is not a company which can be trusted to play nice in the light-touch regulatory environment.

But you have to wonder, are the politicians over-compensating for a poor approach to technology regulation? Politicians, especially in the US, are becoming increasingly involved in the technology industry. What impact will this have on innovation, exploration and the creation of new services?

The technology, or the internet-based technology industry to be more specific, is a young one. Facebook was founded in 2004, Amazon in 1994, Twitter in 2006, Google in 1998 and Uber in 2009. In fact, the modern internet as we know it today is only 25 years old. Realistically, this is an embryonic industry with so much left to explore.

However, it always worth exploring the other side of the argument. With so much left to explore, who knows what dangers lurk in the dark corners. We’ve barely scratched the surface of the potential of the internet and look at the number of privacy scandals which have emerged. Cambridge Analytica grabbed all the headlines, but numerous companies have been operating under a cloud of obscurity when it comes to monetizing personal data and monitoring the movements of users.

There certainly is evidence the technology industry needs to be held to higher standards of accountability, but this is where the conundrum presents itself; where should the line be drawn?

The technology industry has thrived in recent years mainly because the innovators of Silicon Valley have largely been left to themselves. This light-touch regulatory environment has led to the emergence of the fail-fast business model and numerous breakthroughs which have arguably made our lives better. Some might argue against this point, but we have faith in technology.

However, the fail-fast business model solely relies on the concept of exploration. Technologists are testing ideas which have not been conceived before and therefore are not under the restraints of regulation. Ideas have been tested and the good ones are taken forward. But it is the freedoms granted to innovators which has led to the success.

If the technology industry is being tied up in more red-tape, will this progress continue? Would internet banking have emerged if lawmakers had been paying more attention? Would Google Maps be the success it is today? Would Uber have revolutionised the way we get home from the pub?

We are not suggesting the technology industry should be offered free-reign to do whatever it wants, but where should the line be drawn? How much freedom should be offered and how much involvement should regulators have in the development of embryonic ideas?

An excellent example of this point can be taken from the grilling Facebook CEO Mark Zuckerberg testimony to Congress in the wake of the Cambridge Analytica scandal. Facebook and Zuckerberg were rightly held accountable for actions during this period, though on the other side of the interrogation, politicians demonstrated they were not up to speed when it comes to technological developments.

If the House Committee on Financial Services wants to hold an investigation to understand cryptocurrency, how long will it be before it arrives at a conclusion? Weeks? Months? Years?! And should Facebook be singled out? Should this investigation not be industry-wide, otherwise you are only preventing a single company from being competitive.

This is an incredibly complex equation to balance, and we wonder whether bureaucrats are over-compensating for perceived inaction during yesteryear, or if ill-prepared politicians are attempting to secure PR points by wading into a contextually relevant debate.

Vodafone ‘rips up the rulebook’ with new 5G pricing model

With EE claiming the ‘first’ accolade many telcos seem to think is critically important, Vodafone needed to do something different to gain attention; this pricing move might well be an important one.

The idea is simple. Instead of tiering pricing plans on monthly data allocations, unlimited data packages can be purchased with tiered limits of speeds. Customers can select the package which is best suited to the way in which they use their devices.

This approach is certainly an interesting one and certainly has the potential to disrupt the status quo. Vodafone is not the telco giant it once was in the UK. It sits third in the market share ranking for mobile subscriptions and is a comfortable distance away from the top two. However, a new approach to pricing might get the team back to its former glory days.

Brand O2 EE Vodafone Three
Market share 36% 33% 20% 11%

Statistics from Ovum’s World Cellular Information Service (WCIS)

With ‘Unlimited’ data plans, the tariffs are designed with 5G in mind. Vodafone UK CEO Nick Jeffrey pointed out that 5G is much more than a smartphone. A tsunami of devices will be connected to the network soon enough, and consumers will be digesting data in new ways; the last thing 5G consumers want to worry about is reaching a monthly data allocation.

“These tariffs are perfect for the over-the-top generation,” said Consumer Director Max Taylor.

Instead of tiering tariffs on consumption allocations each month, customers will be able to subscribe to download speed limits, with unlimited data pools. As you can see below, there are three tiers to take into consideration.

nor

Taylor suggested each of these tiers have been designed with experience in mind. The slowest, with a maximum speed of 2 Mbps, is for those who do little more than message, browse the internet or distract themselves on social media. The next tier is for those with an average data appetite; 10 Mbps is more than enough to run SD video on the go, while the final tier is for the heavy data consumers, gamers for instance.

Although this is a very interesting approach for Vodafone, what is worth noting is this is not the first time this pricing structure has been used. Elisa in Finland has been tiering its data plans on speed limits for years, but this should not take away from what is a very interesting switch from Vodafone.

“Vodafone’s move into unlimited data and its decision to price 5G the same as 4G indicate the emergence of a challenger mentality,” said Kester Mann of CCS Insight. “This is in sharp contrast to its traditional premium-focussed approach. It could spell bad news for Three, which has built a strategy based on challenging industry norms.”

One party which will not be happy with the news is Three. Over the coming months, the ‘challenger’ telco will be launching its own 5G proposition and we suspect it might be brewing up its own disruption. As Heavy Reading’s Gabriel Brown noted to us at the launch event, such an announcement from Vodafone might ‘steal some of the wind from Three’s sails’.

What is worth noting is the ‘Unlimited’ tariffs will only be available for SIM-only customers. You can see the pricing tiers for subsidized handset contracts at the bottom of the article, there is some opportunity for competitors to undercut Vodafone.

nor

Finally, Vodafone is taking a page out of the BT playbook by tackling the connected everywhere challenge. In launching its ‘5G Gigacube’ FWA product, the team are also supplying a convergence tariff to allow for seamless connectivity everywhere and anywhere. And for £50 a month, with an Amazon Alexa smart speaker included in the bundle, it is an attractive proposition.

Like Three, Vodafone is looking to challenge the traditional home broadband market. The FWA offering doesn’t need a landline or an engineer to hook-up the equipment, it is a simple and cheap alternative to fixed broadband. With home and mobile broadband, both 4G and 5G, bundled in with an Amazon Alexa for £50 a month, this might turn a few heads.

If Vodafone is to make moves in the UK connectivity market, it needs to do something different. This is what the last couple of years have all been about, turning the oil tanker. It now has a new converged network, Redstream, more legacy IT systems are being switched-off each year, nine more in 2019, and the financials have returned to growth for the first time in five years. When you add in the new pricing model, convergence strategy and innovation hubs to bolster the enterprise business, things are looking positive for Vodafone.

After giving up its market-leading position years ago, Vodafone is starting to look like a business which can challenge at the top of the UK connectivity market once again.

US lawmakers formally demand a halt to Facebook’s Libra cryptocurrency

As threatened a couple of weeks ago, the House Financial Services Committee has called for Facebook to halt its cryptocurrency plans.

The demand came in the form of a letter signed by the Chairwoman of the Committee Maxine Walters and a few other members of the House of Representatives that share her concerns. The letter was addressed to CEO Mark Zuckerberg, COO Sheryl Sandberg and CEO of Calibra, the company Facebook created to exploit the Libra opportunity, David Marcus.

“We write to request that Facebook and its partners immediately agree to a moratorium on any movement forward on Libra—its proposed cryptocurrency and Calibra—its proposed digital wallet,” opened the letter. “It appears that these products may lend themselves to an entirely new global financial system that is based out of Switzerland and intended to rival U.S. monetary policy and the dollar. This raises serious privacy, trading, national security, and monetary policy concerns for not only Facebook’s over 2 billion users, but also for investors, consumers, and the broader global economy.”

The letter went on to detail quite how worrisome this disruption to the established way of things is and how little Facebook has done so far to allay these worries. The main concern seems to be similar to that attached to all cryptocurrency, that it will provide liquidity to ‘bad actors’. The difficulty of the US poking its nose into an organization based in Switzerland seems to be the main national security concern. They also spend a paragraph reviewing Facebook’s dodgy privacy track record.

“Because Facebook is already in the hands of a over quarter of the world’s population, it is imperative that Facebook and its partners immediately cease implementation plans until regulators and Congress have an opportunity to examine these issues and take action,” concludes the letter. “During this moratorium, we intend to hold public hearings on the risks and benefits of cryptocurrency-based activities and explore legislative solutions. Failure to cease implementation before we can do so, risks a new Swiss-based financial system that is too big to fail.”

Facebook and its partners must have anticipated this kind of reaction when they made their announcement. The Libra project is so grand in its scope and ambition they couldn’t possibly have expected authorities to adopt a laissez faire attitude, even if Facebook had a spotless reputation. It’s also hard to see how Facebook can do anything other than comply with the request and prepare itself for an exhaustive oversight process. Don’t expect to see Libra in the wild anytime soon.

What can Western businesses learn from China’s digital innovators?

Telecoms.com periodically invites third parties to share their views on the industry’s most pressing issues. In this article Angus Ward, CEO, Digital Platform Solutions, BearingPoint//Beyond, takes a look at some of the ways in which China is more innovative than the West.

Over the past five years, China and its internet-born businesses have become a globally recognised force for digital innovation. This year, China’s retail market is set to become the largest in the world, exceeding sales in that of the United States and topping $6 trillion in 2020. Last year, it also had 186 unicorns (i.e.: a privately held start-up company valued at over $1 billion), with a combined valuation of more than USD $736 billion.

So, what’s the secret? What is China’s trajectory as a digital superpower and how far beyond Asia does it extend?

Consumers in Asia are voracious consumers of technology. They’re happy to switch to a new digital service (preferably mobile) if it offers a more convenient solution to a problem. They will concede on data privacy as a price for that convenience. That’s why Asia is a hot bed for innovation with digital players adopting a fail-fast mentality – rapidly taking an idea, launching a product to test the market to see if it flies and then rapidly building.

Through this approach, digital lifestyle app WeChat has grown from a simple messaging platform into an ecosystem of solutions for just about every customer problem – from mobile payments and e-commerce even to transport.

Western companies have a lot to learn from many of the Chinese digital heavyweights. Until recently, these firms were relatively unknown outside China, but this is no longer the case. With the launch of 5G in the UK, new smartphone models from the likes of Oppo and OnePlus are the first handsets to hit the market. US brands are nowhere in sight currently. Huawei is seen by many as a market leader in 5G technology and communications service providers (CSP) like China Mobile have set up European bases from which to expand. This suggests that these Chinese companies are innovative, ambitious and are ready to take the west by storm.

So, what can western players learn from their digital rivals from the east?

Eyes on the prize

For every western tech giant, there is a Chinese equivalent. Given China’s population, it’s on a scale that is pretty similar to the west. In the past 18 months, some of the best-known western technology giants have experienced a breach of trust with customers stemming from their lack of transparency into how the giant tech player actually use – and misuse – customer data. Facebook and Cambridge Analytica scandal are an example. The entire episode has left customers both questioning the integrity of the technology companies they’ve come to rely on for much of their online digital interactions but also it has weakened the bonds tying them to their customers.

While Facebook and its fellow FAANG companies face criticism over data privacy, the likes of Baidu, Alibaba and Tencent – known as the BAT companies – go from strength to strength in China. Thanks to investment and other support from the Chinese Government, Baidu dominates online search in China: Tencent is the country’s biggest gaming firm and is also behind the WeChat messaging and payments app: and Alibaba has used its success in China’s e-ecommerce market to invest billions in Artificial Intelligence (AI). With China’s plans to build a USD $1 trillion AI industry by 2030, the country is on track to overtake the US as the world’s leader in use of this technology.

And it’s not just in AI where China wants to claim the top spot. The country’s “Made in China 2025” strategic plan aims to move the country away from large-scale manufacturing and transition into high value product and services. China is also striving to take the lead in robotics, IT and clean energy, among other sectors.

Undoubtedly the real winners of 4G were the FAANG companies who dominated in handsets, social media, internet search, advertising revenues, content streaming and e-Commerce alongside gaming. But in the race to 5G, it’s China now ready to claim a material share of global revenues. With Government sponsored focus on the new technologies like AI and robotics, and a massive home market of tech savvy consumers with a voracious appetite, Chinese digital players will be much faster at innovating the new applications that will power technology adoption such as for 5G

Without as many areas of interest, and lacking the same levels of capital, customer base and support of national governments behind them, it’s difficult to see how Western players will enjoy the same success as Chinese firms. But while they can’t draw on the same resources as their Chinese peers, there is no reason why Western firms cannot adopt the same approach.

There is no “I” in team

Chinese companies’ willingness to work closely with global partners has played a significant part in the success of its tech start-ups. China’s decision to invest heavily in the tech sector, both at home and abroad, means that it is slowly but surely working its way up the value-added ladder. Western companies can learn much from this collaborative approach in order to innovate and better compete.

In sectors like e-commerce and the Internet, Chinese firms create ecosystems that drive innovation because of their size and also the advantages and benefits they offer to third-party partners, in terms of access to new markets.

For example, Chinese ride-hailing app DiDi outperformed its rival Uber in China on everything from marketing to speed to market, before finally acquiring Uber’s China assets. DiDi regularly introduces new features and services from its partner ecosystem, such as sending a driver for your car when you’ve had too much to drink: and an SOS feature to improve customer safety.

Partner ecosystems help to innovate new ideas, expand offerings, increase reach and grow revenue. An effective partner ecosystem solves customer problems through the exchange of ideas and combining contrasting capabilities to create new more functional, multi-faceted and compelling solutions. Nevertheless, ecosystems are complex to manage and so must always be underpinned by a digital business platforms to automate operational processes to bring governance, efficiency and control but also to secure and share the benefits across the parties. This is why both FAANG and BAT are also digital business platform companies.

According to a May 2018 study by consulting firm BearingPoint, 60 percent of Communication Service Providers (CSPs) expect partner ecosystems to drive cost-effective innovation, 59 percent expect ecosystems to help them remain competitive, 51 percent believe ecosystems will help them improve customer experience and 48 percent believe that ecosystems will create direct relationships with customers. This picture was replicated across almost every other industry covered by the survey from automotive to financial services.

The reality is that very few innovations – whether it’s an entirely new service or improving an existing one – are created solely in-house anymore. For CSPs to thrive in the expanding, fast-moving and hugely competitive digital market, cultivating and actively participating in a partner ecosystem is now essential.

 

Angus WardAngus is the CEO of BearingPoint’s digital platform solutions arm, BearingPoint//Beyond, appointed in September 2017. Angus brings 30 years of consulting and solutions experience to his role, supporting organisations across multiple industries in shaping strategies and adopting platform-based business and operating models with differentiating partner ecosystems.