GAFA: How to be a part of this network economy

The GAFAs (Google, Apple, Facebook, Amazon) have become global superpowers. If they were a State, they would carry as much weight as Thailand, which ranks 32nd in the world, and could become the world’s leading economic superpower by 2020, according to agency FaberNovel, which published on November 5th the new version of its studyGAFAnomics, 4 super-powers to outperform in the Network Economy.

Written by Barbara Chazelle (Méta-Media)

The extent of their empire has not yet reached its limits: This year GAFA market capitalization surpassed that of CAC40 companies by 200 billion. It was still lower by 300 billion a year ago!

As explained in last year’s study, the GAFAs follow three key rules:

  • These companies no longer have clients, but users. The creation of value no longer depends on transactions but on usage. Even if they don’t buy anything, the mere fact of interacting with the brand produces value.

  • Value is no longer defined by what is produced but by the usefulness perceived by users (specifically in terms of time saved)

  • An innovation-friendly environment and management that values talents and accountability for these

  

But these GAFA are no longer simply four champions of the digital economy. They are crystallizing the elements of it, which, according to FaberNovel, everyone can be a part of.

A globalized economy

GAFAs have become a breeding ground for innovation and the creation of new giants whose playgrounds extend to all continents. These include the NATUs (Netflix, Airbnb, Tesla, Uber), major Chinese companies (Alibaba, Baidu, Tencent, Xiaomi) or even unicorns, companies valued at over a billion dollars.

These new players also experienced dramatic growth. Unicorns are reaching a billion dollar valuation in an average of 18 months, something which took 20 years for traditional companies. Consequently, the GAFAs, which could have bought the 42 unicorns on the market in 2014, could no longer afford the three main ones in 2015.

These new mammoth companies of the digital world achieve this rapid growth by using the open infrastructures developed by their predecessors, the GAFAs, enabling them to considerably reduce their market entry costs, with almost no technological barriers. For example, Uber relies as much on Apple’s App Store or Facebook to promote/distribute its service as Google Maps or Amazon’s server infrastructure.

The GAFA model is reaching a plateau in this ultra-competitive environment. They are now more focused on gaining market shares than growing their company.

A new competitiveness based on connection and openness

This new economy rests on two key principles: connection and openness. It’s an economy of open networks to which other companies can connect to create value. It has gone from a concentrated economy to a distributed one.

Moreover, the traditional value “chain” has been transformed into a “loop” in which value is captured endlessly to the benefit of both the company and the final user. In this new paradigm, it is those managing the network that earn the greatest revenues and profit margins.

FaberNovel’s study identifies 4 operational levers of the players in this new economy:

  • Magnet, the company exploits and monetizes micro-points of value. It is capable of dealing with billions of small transactions.

  • Real-time, the company adapts its products, its offer, its prices and even the experience in real time through behavioural data on its users.

  • Intimate, the company offers as many experiences as it has users. Large-scale customization is at the heart of their products.

  • Infinite, the company can grow to the point of having virtually no marginal cost for acquiring an additional client.

How to take advantage?

According to FaberNovel, there are five possible strategies for traditional players looking to win in a GAFAnomics economy:

  • Plug-in to the existing infrastructure of the companies governed by the GAFAnomics economy, like FedEx, whose online service is built on Google Maps.

  • Partner with them, like Southwest Airlines, who offers the Apple Beats service for free to its passengers

  • Co-innovate with them, like Eutelsat and Facebook, who are working hand-in-hand with them to connect Africa

  • Create your own network. In principle, it is not highly advised to compete head-on with these digital giants, but it is possible to do so. Nike, for example, who did not historically have any network assets, became a sports network orchestrator.

  • Co-innovate without GAFAnomics, like Disney, Fox and NBC have done by creating the Hulu platform, which today has 6 million subscribers.

Data, it would seem to us, is the only consideration taken for the possibility of connecting with these intelligent networks. Before embarking on one of these promising strategies, it is probably wise to measure the impact of giving all or part of your data and that of your clients to these giants. But then again, do we have a choice?

This article was originally published on Méta-Média and is presented here as part of the editorial partnership between CMF Trends and Méta-Média.  © [2015] [Méta-Média]. All rights reserved.

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