q Spiders and flies: business predators are lurking - Business Reporter

Spiders and flies: business predators are lurking

Bernd Gross warns of the dangers that big tech poses to up-and-coming rivals, and explains how the stifling of competition and innovation hurts everyone in the long run

Do not listen to the enticing promises of the spider, for it will only end up eating you. This poem has been a warning to children for many years. It is also a fitting metaphor for what I call the “spider economy.” Here, I refer to a system in which the largest tech firms capture and consume any small entrant who enters their domain, much like a spider devouring flies. If they cannot eat the new company, then the large spiders simply spin their own version of the product to out-compete their new rivals.

This tactic of copying a product then undercutting the original vendor is hardly new. Rather, it has existed in nearly every industry for many years. Retailers are a prime example of this. Walk into any discount supermarket chain like Aldi or Lidl and you’ll see aisles of cheap, own-brand goods that any savvy consumer can see are clearly based on a more expensive, popular brand.

The tech giants of today such as Amazon Web Services (AWS), Microsoft, Alphabet (Google), Facebook and Salesforce may not have invented these predatory techniques, but they have certainly mastered them. Their unparalleled scale and resources allow them to rapidly churn out decent copycat products that are often cheaper, far faster than any new entrant.   While this situation is convenient for consumers today, the stifling of competition and therefore innovation hurts us all in the long term.

This is what I call “renovation,” where companies often make a situation more attractive by superficially improving on the existing structure – rather than creating anything entirely original. Again, this is fine for consumers in the short term. However, it creates a significant barrier to entry for upcoming challengers to compete, as start-ups may be unable to match the speed at which incumbents can produce a shinier alternative.

Innovation, which involves building a new solution or service from scratch, is often a disruptive force on the industry it is trying to reform. There is nothing intrinsically wrong with spiders seeing something genuinely new and wanting to capture it by buying it. This can actually help new start-ups by freeing up space in the market for others to bring another new idea.

Imitation kills competition

However, copying new challengers does not encourage innovation in any form. For instance, Amazon’s position as a supplier on its own platform allows it to tip the odds in its favour by controlling which products consumers see. Similarly, Microsoft’s inclusion of its Teams application in their Microsoft 365 bundle had a significant negative impact on the growth of newer competitors Zoom and Slack.  

When cloud giants such as AWS and Microsoft Azure include new products and solutions as part of their platforms, they kill their indirect competition. This behaviour creates a closed ecosystem in which consumers are discouraged from engaging with multiple providers, due to the convenience of sticking with a core platform for non-core solutions. Once again, short term convenience and simplicity for the consumer kills long term creativity and competition.

Having only a few providers of all these services doesn’t automatically mean that the consumer is doomed and nothing new will ever be produced. There are certainly significant advantages in efficiency and convenience that result from this process. However, truly original thinking and risk taking are far more likely to come from outside the existing system than from within.

Flies play a crucial role in the ecosystem, turning decay into new life. We need to ask ourselves: if the spiders eat every fly, then what?

Keeping the predators in check

This is not a call for governments to abolish the free market. Quite the opposite, it is a warning that if a company becomes too dominant in its space the market ceases to be free. This is when anti-trust is needed. Governments around the world, both in the West and in China, are waking up to this reality and beginning to take action. It is up to them now to decide at what point does convenience today begin to harm the world of tomorrow.

In addition to government intervention, as individuals we should look at what we can do right now. Think twice about locking yourself into a closed ecosystem, ask yourself if an offer really is as good as it first appears. Spiders often use tempting tactics to encourage you to stick with the status quo. The difficult but crucial task in this scenario is trying to look beyond the immediate term and to the future. What opportunities or new technology will you miss out on next year? Will choosing a single vendor expose you to geopolitical risks? Are you giving up your data sovereignty?

At the end of the day, we all must make our own judgements about the trade-off between today’s ease and tomorrow’s free market. For some, sticking with the closed ecosystem will be worth it. Just be wary, to make sure you don’t get caught in the spider’s web.

Bernd Gross is CTO at Software AG. With over 25 years of international experience in the IT industry, including innovation management and technology rollout projects at the likes of Nokia Siemens Networks, Bernd is a leading pioneer in digitisation, the Internet of Things and industry 4.0. Bernd co-founded the IoT platform Cumulocity in 2012, which went on to be acquired by Software AG in 2017.

Main image courtesy of iStockPhoto.com

© Business Reporter 2021

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