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Rating The FAANGs

(Source: www.forbes.com)

Privacy issues and sinking stock prices have thrust the “FAANG” companies: Facebook, Amazon, Apple, Netflix and Google into the spotlight this month. In order to understand them better, here’s a quick look at their various strengths and weaknesses as of summer 2018.

FACEBOOK:

Strengths:

  • Over 2 billion users worldwide, way more than any other social network

  • Still growing rapidly in developing nations where it’s often the main source of news

  • Owns Instagram which is experiencing rapid growth and remains popular with Gen Z

  • Owns WhatsApp which remains popular outside the US

  • Dominates online ad market along with Google

  • Has massive amounts of data around users and their behavior both on and off the platform

Weaknesses:

  • Gen Z has largely abandoned “Mombook”

  • Issues with #FakeNews, fake profiles and Cambridge Analytica

  • Contentious relationship with advertisers who need to use the platform but hate the way they are treated by Facebook

  • Facebook engagement is down and many expect it to continue to fall off

  • Still struggling with its video service Watch

  • IGTV on Instagram is still a question mark

GRADE:  B-

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AMAZON:

Strengths:

  • Dominates ecommerce market with no competitors in sight

  • Generally well regarded by customers in terms of customer service and overall product

  • Also seen as innovative and forward thinking

  • Prime’s free two-day delivery locks customers into Amazon ecosystem

  • Expanding into multitude of new areas (groceries, health care)

  • TV division more robust than many realize, plan to serve as clearinghouse for multiple OTT apps seems to be paying off

  • Sports broadcasting rights will likely grow too as Amazon can add merchandising to the mix

  • Alexa owns voice market thanks to early launch, decision to allow third party developers and well-designed, well-priced products

  • Billion dollar ad market in an environment where users frequently can’t/don’t distinguish between Amazon content and Amazon ads

  • Data based on customer purchases seen as far more accurate and desirable by advertisers than data based on “Likes” (Facebook) or search (Google)

  • Amazon Web Services dominates its market

Weaknesses:

  • Overrun by counterfeiters, primarily from China

  • Counterfeiters also traffic in fake users and fake reviews in order to game the system and get “Amazon’s Choice” badge—undercuts confidence in Amazon platform

  • Prime video in the browser is still not a good experience for users, decision not to uncouple it from main Amazon site (or at least give it a unique URL) remains puzzling
  • Most likely to be dismantled by Congress as Amazon’s core business (retail sales) is the FAANG business most members of Congress actually understand.

  • As users become more aware of privacy issues, Amazon may need to change marketing tactics

  • Amazon Fire line and other non-Alexa hardware still also-rans to Roku and iPad.

GRADE:  A-

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APPLE

Strengths:

  • Dominates hardware market, particularly in mobile phones where market still breaks down into iPhone/not-an-iPhone (despite Samsung’s best efforts.)

  • Still strong in PC market with MacBook product line

  • Strong reputation for quality and good design

  • Extremely loyal customer base

  • Strong commitment to customer privacy that predates current controversies

  • Huge cash reserves

Weaknesses:

  • Three recent product launches—HomePod, Apple TV and Apple Music—have failed to achieve any sort of traction, let alone the market dominance Apple is used to—HomePod and Apple TV are dead last in their respective categories

  • Closed ecosystem seems antiquated in 2018 and may prevent Apple from getting traction in new categories like voice and TV

  • Secrecy around their plans for distributing their new TV content seems like a play from 2006, makes them seem out of touch

  • Market for iPads (and tablets in general) slowing down; Amazon’s Fire Tablets, at one-fourth the price, are gaining ground

  • Siri has never recovered from early quality issues and lags behind Alexa

  • Apple Maps and other proprietary software (Pages, Keynote) continue to remain niche products with limited adoption

  • Commitment to privacy has handicapped their advertising efforts

  • Pricing strategy seems to be backfiring as Apple TV and iPad lose out to much lower priced competitors (Roku, Amazon Fire) 

  • Loyal fan base seems concentrated in Boomer/X/older Millennials—younger Millennials and Gen Z don’t display similar passion for Apple and its products

GRADE:  C+

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NETFLIX

Strengths:

  • Dominates subscription online video (SVOD) market, which it essentially created

  • Global expansion has it in almost every country in the world, way ahead of other media companies

  • Has proven adept at producing HBO-like high quality upscale programming
  • Has signed Shonda Rhimes, Ryan Murphy and other purveyors of quality mass market programming

  • Movie division has been getting good buzz
  • Starting to make reverse syndication deals (BoJack Horseman to Viacom)

  • Well liked by customers

  • Leadership team (Hastings and Sarandos) seen as forward thinking and innovative

Weaknesses:

  • $13B content spend is riskier than media is making it out to be: most new shows fail, Netflix is looking at short movie-sized windows in which to promote hundreds of new shows and it’s unclear how effective their storied algorithm will be even with a multi-billion dollar marketing spend.

  • Ability to penetrate non-Western markets (and many Western ones) still unproven—massive all-at-once expansion may prove to be a bad move (or genius, but jury is still out.)

  • “Comfort Food Factor”—getting audiences to watch familiar network shows like “The Simpsons” is much easier than getting them to watch a brand new series, especially at a time of peak content when they have many other choices

  • US networks and studios taking back much of their library content, leaving Netflix to rely on originals

  • Movie catalog is weak

  • Very narrow and easily disrupted business model compared to other FAANGs—relies on single revenue stream (subscriptions) until syndication business ramps up.

  • Does not own “last mile access” and thus must rely on MVPDs and other broadband providers who can make life difficult if they want to.

GRADE:  B

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GOOGLE

Strengths:

  • Dominates the search market with no real competitors in sight 

  • Dominates online ad business based on ability to utilize user data obtained from search

     

    along with ad serving (Double Click) and related businesses

  • Strong software business (Gmail, Docs, Chrome, Maps et al) which provides even more data that can be used to target advertising

  • YouTube is a thriving business with no real competitors

  • YouTube Live TV vMVPD product seems to be growing apace with entire vMVPD industry

  • YouTube Originals have surprised the industry by producing quality programming

  • Has largely avoided the opprobrium Facebook is getting around privacy

  • Innovating on everything from cars to home automation to biotech
  • Sizable cash reserves

Weaknesses:

  • While data collection practices don’t feel as invasive as Facebook’s, still getting pushback from GDPR and related privacy initiatives

  • Suffers from “magpie syndrome”—focuses on bright shiny object (e.g., Google Plus, Google Fiber) and then quickly forgets about it

  • Advertising business is under attack from a range of parties including big media companies and new blockchain vendors

  • Google Home is doing better than Apple HomePod but still not close to Amazon Alexa, especially in the popular imagination

  • Has been unable to penetrate hardware market except for Chromebooks

  • Chromecast OTT device has fallen behind both Roku and Amazon Fire Stick

  • Lacks last mile connection to internet and is thus at mercy of broadband and mobile providers.

GRADE:  B+

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Final Notes

While people often lump all five companies together, they have radically different business models, monetization schemes, internal structures and, as we have just seen, strengths and weaknesses. In fact, aside from the fact that they’ve all taken advantage of digital technology to dominate a certain piece of the market, they actually don’t have much in common.

The one issue they are all facing is, ironically enough, a lack of any sort of last-mile access to the home–these internet companies are all reliant on someone else to deliver their product to users phones, laptops and television sets.

Is there anything that rings false to you? Anything obvious I left out?

Love to hear your opinions.

More Info: www.forbes.com

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