Mobile is driving merger mania and consolidation in the TMT space
Let’s get back to technology for a day here. I have a slew of links in the TMT space and the overriding them is consolidation. Mobile is now king. And what technology, media and telecom companies are finding is that the mobile world often demands a wider product portfolio and great companies find themselves in search of ways to fill in the gaps. We see that with European mobile giant Vodafone looking to buy a Cable company in Germany, with Yahoo going on a mobile services acquisition spree and with Google buying Waze to get into social. All of these stories are about the consolidation wave ongoing in the TMT space.
Let’s look at telecom first. The interesting bit from a business perspective about the NSA spy scandal revelations for me is that the NSA really looks at the telecom operators as a one-stop shop for snooping. A company like AT&T has mobile, fixed line, and internet all in one. It covers the gamut of traffic. And this is because the telecom players were the first to recognize that barriers to entry in their space were eroding.
It used to be that the huge capital expenditure costs presented a barrier. As the telecom space consolidated in individual silos like mobile, fixed-line, satellite, internet and cable, even non-facilities based operators couldn’t be a real threat because they can’t scale without a network of their own. This is true in mobile, in cable, in internet and in telephony. But all of these different operators have begun to invade each other’s space, using their huge consumer penetration in their own telecom silo to break into the other spaces. And as this has happened, big telcos have merged across silos. For example, in the US, this is why satellite operator Dish is trying to buy Sprint which itself is cobbled together from various mobile, internet and fixed line networks. They need to compete with Verizon. Now the same is occurring in Europe with Vodafone, the largest operator moving into cable to compete with Telekom, which already has a soup to nuts telecommunications portfolio in Germany, its domestic market and the largest market in Europe.
Then there’s the Internet space. The company most in the news now for acquisitions is Yahoo. Under new CEO Marissa Mayer, Yahoo has been gobbling up one company after another. The question is why. In the old days, under Terry Semel, who I worked for, Yahoo tried to be an Internet media player and lost its way as Google ate its lunch in search and, therefore, eventually advertising. Yahoo was streamlined under previous CEO Carol Bartz after it refused a buyout from Microsoft under founder Jerry Yang. The company has been in turmoil for years and has shrunken while companies like Google have vastly expanded.
So Bartz came on as the turnaround expert and took the knife to Yahoo. That didn’t work in reviving the company’s fortunes, so Mayer is trying to re-do the Semel strategy in a smart way that is centred on mobile. All of Yahoo’s acquisitions are mobile and media related. The goal is to be a player in media but recognizing that the landscape has shifted to mobile. Mergers are hard, but these acquisitions, except with Tumblr, all seem to acqui-hire deals where the goal is the talent and their technology, not customers or companies per se. Perhaps, Yahoo can manage the integration issues as a result. We’ll see. I like the aggressiveness of the strategy though.
Then we have Google. The company is all-encompassing. So it’s hard to make any overarching comment about strategy. However, I will note two threads that stand out from the links. First, Google,s size is creating headaches and they are now running into serious antitrust issues, particularly in Europe. This is true in search but also in mobile now too. And this is clearly driven by competitors who see Google as a threat due to its size. Second, Google missed the boat on social. They are not a ‘social’ company by nature. So they have only belatedly started to get into the arena. And they are doing so in a somewhat coercive and aggressive way, shoving Google Plus down everyone’s throat and forcing it into all parts of the Google ecosystem. From a customer-centric point of view, this has been a big departure of form for the company which has prided itself on being a customer-first, if automation-driven king of company. Think of the Waze acquisition as being about both category search and social, two areas Google has pursued aggressively. There will be antitrust issues.
Elsewhere in the Internet, it is also about mobile. Here are a few stories to look at. I have a few comments on Samsung, Microsoft, Nokia and Blackberry first. As you know, I think Nokia and Blackberry are toast. I don’t see Windows mobile or Blackberry making huge inroads. Windows has a better chance via tablets or the Xbox but Blackberry has ceded its advantage in business completely, especially now that it no longer has a physical keyboard. It’s only a matter of time before the company goes under.
Nokia doesn’t seem like the company can go it alone. It has stopped production of Symbian devices and is putting almost all of its eggs in the Microsoft basket. It’s Windows Mobile or bust for Nokia. Can you think of any other successful computing company in the last twenty years like that? I certainly can’t. Nokia is all about handsets and they are only on one platform. That is the most ridiculous corporate strategy I have ever seen. They are toast. Only an acquisition by Microsoft will save them.
On Microsoft, if you read the two stories on gaming, you will see that it’s DNA is closed, not open. Closed has worked for Apple but they were first into the space. The corporate DNA of Microsoft is going to be a killer here. They are restrictive by nature; they just can’t help themselves. The Xbox could be a natural entree into the Windows world. But Microsoft is locking it down in a way that will prove counterproductive. They just might lose share with their policy of restrictions and high prices. I am thoroughly unimpressed.
“Japan, one of the world’s biggest gaming markets, is not on the list of 21 regions Microsoft says will get the Xbox One this year. Although Microsoft has struggled to make an impact in the country, the Xbox 360 did gain a small following among hardcore Japanese gamers, who would be the most inclined to take special measures to play the system ahead of a local release. With Asian countries unlikely to see the Xbox One until late 2014, gamers in the region may face a long wait with no recourse.
Sony has said that the PlayStation 4 will be region-free, like the PlayStation 3.”
“The Redmond, Wash., software giant last week irked the gaming community by disclosing restrictions associated with how game discs for its forthcoming Xbox One console will be resold, lent or shared with friends. Microsoft also said the Xbox One, which is being released in November, would be required to connect to the Internet at least once per day.
Microsoft’s restrictions—as well as the announcement Monday of a $499 price tag, which is much higher than the company’s previous console launches—prompted angry comments from gaming fans.”
Edward here. Note the thread in some of these stories – messaging, Netflix, Pandora – is about consolidation and horizontal integration. Being in one space is not enough for any of these companies because mobile is by nature open and that means that a big competitor with lots of customers from an adjacent space can eat you for lunch unless you have an offensive strategy.
“A day after Pandora purchased a radio station in an effort to pay artists less in royalty fees, the organization that collects license fees for songwriters and composers filed a lawsuit asking a federal judge to step in. Broadcast Music Inc., better known as BMI, filed suit in the U.S. Southern District Federal Court in New York today accusing Pandora of acting in bad faith as it negotiates new music licenses.”
“We are in the midst of the latest battle, in which ASCAP and its members have abruptly shifted away from 100 years of business practice and attempted to create a new right to “withdraw” from ASCAP the right to license certain songs on what is essentially a case-by-case basis.
Certain powerful music incumbents see Internet radio as a threat to the status quo. We see Pandora, and Internet radio, as a transformative way to connect listeners with music they love.”