tag:theconversation.com,2011:/fr/topics/online-gravity-8403/articlesonline gravity – The Conversation2017-08-13T21:13:35Ztag:theconversation.com,2011:article/816212017-08-13T21:13:35Z2017-08-13T21:13:35ZSpotify may soon dominate music the way Google does search — this is why<figure><img src="https://images.theconversation.com/files/181106/original/file-20170806-2414-1vymiy4.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">From European beginnings, Spotify looks set to take the crown of the #1 music streaming service in the US later this year.</span> <span class="attribution"><a class="source" href="https://www.flickr.com/photos/dougliz/32727525400/">dougliz/flickr</a>, <a class="license" href="http://creativecommons.org/licenses/by-sa/4.0/">CC BY-SA</a></span></figcaption></figure><p>While competition online starts the same way as that in offline markets, <a href="https://theconversation.com/why-theres-no-pepsi-in-cyberspace-19902">my research</a> shows it often settles very differently online.</p>
<p>Both have seen lots of competitors emerge in a new area underpinned by new technologies. But online, consolidation ends in a high-stakes winner-takes-most “title fight” between the two strongest players.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/why-theres-no-pepsi-in-cyberspace-19902">Why there's no Pepsi® in cyberspace</a>
</strong>
</em>
</p>
<hr>
<p>In search this was AltaVista vs Google, in social media it was MySpace vs Facebook and in business networking Spoke vs LinkedIn. The result is that the victor at this critical juncture goes on to dominate their corner of the market and becomes almost unassailable in that space.</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/181002/original/file-20170804-27426-23n3ec.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/181002/original/file-20170804-27426-23n3ec.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/181002/original/file-20170804-27426-23n3ec.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=472&fit=crop&dpr=1 600w, https://images.theconversation.com/files/181002/original/file-20170804-27426-23n3ec.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=472&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/181002/original/file-20170804-27426-23n3ec.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=472&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/181002/original/file-20170804-27426-23n3ec.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=593&fit=crop&dpr=1 754w, https://images.theconversation.com/files/181002/original/file-20170804-27426-23n3ec.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=593&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/181002/original/file-20170804-27426-23n3ec.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=593&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Facebook vanquished early industry leader MySpace in Social Media.</span>
<span class="attribution"><span class="source">Source: Online Gravity</span></span>
</figcaption>
</figure>
<p>The evidence is mounting that Swedish music streaming company Spotify is on the verge of seizing the crown in music.</p>
<p>Pandora has been for some time the dominant real-time streaming service in the United States. Three years ago it had a clear lead but competition from Spotify appears to be stronger than ever. Pandora was a mass market pioneer in the online “radio” style streaming format where users pick stations and the music is compiled for them, whereas Spotify adopted an on-demand model which has prevailed. </p>
<p>Spotify has created many features that has made it popular with users like the ability to create and swap playlists. </p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/how-data-is-transforming-the-music-industry-70940">How data is transforming the music industry</a>
</strong>
</em>
</p>
<hr>
<p>In the United States, Pandora has more monthly active users than Spotify, Shazam, Soundcloud and Amazon Music, according to App Annie. While Pandora has dominated in the United States its success in other markets has not been so strong. In Australia and New Zealand, for example, it recently closed its service and Jane Huxley, former managing director of Pandora Australia and New Zealand who resigned in March was <a href="http://www.theindustryobserver.com.au/spotify-aunz-taps-ex-pandora-exec-jane-huxley-lead-role/">just announced</a> in the same role at Spotify.</p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/181107/original/file-20170806-7490-1om1cdg.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/181107/original/file-20170806-7490-1om1cdg.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=255&fit=crop&dpr=1 600w, https://images.theconversation.com/files/181107/original/file-20170806-7490-1om1cdg.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=255&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/181107/original/file-20170806-7490-1om1cdg.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=255&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/181107/original/file-20170806-7490-1om1cdg.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=320&fit=crop&dpr=1 754w, https://images.theconversation.com/files/181107/original/file-20170806-7490-1om1cdg.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=320&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/181107/original/file-20170806-7490-1om1cdg.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=320&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Over a decade in the making, could 2017 be time for Spotify’s time in the Sun?</span>
<span class="attribution"><span class="source">giuseppemilo/flickr</span></span>
</figcaption>
</figure>
<p>Spotify also has a massive global subscriber base - many of whom are paying higher per user fees than Pandora. It now looks likely to take the global lead for three reasons:
</p><ol>
<li> Explosive new user growth
</li><li> Growing investor valuations
</li><li> Attraction of technology talent
</li></ol><p></p>
<p><strong>Explosive new user growth</strong></p>
<p>While the category of streaming music still is in its infancy, new users are critical to success. And this is where Spotify is killing it. In the context of Apps, new users are all about downloads and for the best part of 2017, Spotify has taken the crown of #1 most downloaded music app in the United States on iOS. So while Pandora is still currently ahead in monthly active users, at this rate it won’t be long before Spotify takes the lead overall.</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/181081/original/file-20170805-4092-19f9unt.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/181081/original/file-20170805-4092-19f9unt.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/181081/original/file-20170805-4092-19f9unt.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=368&fit=crop&dpr=1 600w, https://images.theconversation.com/files/181081/original/file-20170805-4092-19f9unt.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=368&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/181081/original/file-20170805-4092-19f9unt.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=368&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/181081/original/file-20170805-4092-19f9unt.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=462&fit=crop&dpr=1 754w, https://images.theconversation.com/files/181081/original/file-20170805-4092-19f9unt.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=462&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/181081/original/file-20170805-4092-19f9unt.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=462&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Spotify now #1 in the United States in Music App Downloads.</span>
<span class="attribution"><span class="source">Online Gravity with data from App Annie, 2017.</span></span>
</figcaption>
</figure>
<p><strong>Growing investor valuations</strong></p>
<p>Investors always have a forward looking view. Companies are valued not on what they are doing today but what investors expect from them in terms of future growth and performance. While still private, and with rumours of a stock market listing later this year, Spotify is now valued by investors at more than US$13 billion - over five times the current value of publicly listed Pandora which is currently US$2.3 billion. </p>
<p><strong>Attraction of technology talent</strong></p>
<p>The success of all online ventures is fuelled by technology talent. And many of the people in the tech sector have their antennae tuned to who is hot and who is not.</p>
<p>You can now use data to examine which companies are the most desirable destinations for software developers and tech talent by looking not at what people say, but where they go. When people leave one company to go work for another that creates a data point, and when you have lots of these that’s a trend. </p>
<p>Using the technology talent movement metrics we can see also Spotify took the lead from Pandora in the United States in September last year. </p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/181100/original/file-20170806-7490-1t78z19.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/181100/original/file-20170806-7490-1t78z19.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/181100/original/file-20170806-7490-1t78z19.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=376&fit=crop&dpr=1 600w, https://images.theconversation.com/files/181100/original/file-20170806-7490-1t78z19.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=376&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/181100/original/file-20170806-7490-1t78z19.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=376&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/181100/original/file-20170806-7490-1t78z19.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=473&fit=crop&dpr=1 754w, https://images.theconversation.com/files/181100/original/file-20170806-7490-1t78z19.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=473&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/181100/original/file-20170806-7490-1t78z19.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=473&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Spotify overtakes Pandora as a Tech Talent Destination of Choice.</span>
<span class="attribution"><span class="source">Paysa</span></span>
</figcaption>
</figure>
<h2>How competition evolves</h2>
<p>Initially new segments of the digital economy emerge in the same way as new segments of the traditional economy — with a vibrant explosion of new life and competition. Consider the car industry where there have been more than 3,000 car companies formed in the US alone over the <a href="http://articles.latimes.com/1985-01-06/business/fi-7131_1_computer-industry">last century</a>. </p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/180598/original/file-20170801-9618-iyrqr5.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/180598/original/file-20170801-9618-iyrqr5.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/180598/original/file-20170801-9618-iyrqr5.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=371&fit=crop&dpr=1 600w, https://images.theconversation.com/files/180598/original/file-20170801-9618-iyrqr5.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=371&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/180598/original/file-20170801-9618-iyrqr5.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=371&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/180598/original/file-20170801-9618-iyrqr5.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=466&fit=crop&dpr=1 754w, https://images.theconversation.com/files/180598/original/file-20170801-9618-iyrqr5.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=466&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/180598/original/file-20170801-9618-iyrqr5.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=466&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Birth of the car spawned intense competition and hundreds of new startups.</span>
</figcaption>
</figure>
<p>Under the influence of competition, these thousands of companies have now winnowed down to <a href="https://www.statista.com/statistics/232958/revenue-of-the-leading-car-manufacturers-worldwide/">ten major global companies,</a> each with sales of more than US$100 billion.</p>
<p>The way competition evolves online is akin to how the force of gravity has formed our solar system from lots of smaller rocks over time into clear planets with moons or satellites but, notably with no dual or triple planets. I refer to this phenomena as <a href="http://www.simonandschuster.com/books/Online-Gravity/Paul-X-McCarthy/9781476795546">“Online Gravity”.</a></p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/180570/original/file-20170801-21966-18wiy07.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/180570/original/file-20170801-21966-18wiy07.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/180570/original/file-20170801-21966-18wiy07.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=614&fit=crop&dpr=1 600w, https://images.theconversation.com/files/180570/original/file-20170801-21966-18wiy07.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=614&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/180570/original/file-20170801-21966-18wiy07.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=614&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/180570/original/file-20170801-21966-18wiy07.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=771&fit=crop&dpr=1 754w, https://images.theconversation.com/files/180570/original/file-20170801-21966-18wiy07.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=771&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/180570/original/file-20170801-21966-18wiy07.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=771&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Online Gravity and three phases of industry evolution: Offline vs Online.</span>
<span class="attribution"><span class="source">Author</span></span>
</figcaption>
</figure>
<p><em>*Except China, Russia and South Korea.</em></p>
<p>Consider web search where the now-dominant Google launched in 1998. It was about the 16th search engine launched — after <a href="http://www.simonandschuster.com.au/books/Online-Gravity/Paul-X-McCarthy/9781925030747">Infoseek, Alta Vista, WebCrawler and at least a dozen others. </a></p>
<h2>Where are today’s title fights?</h2>
<p>We can see competition impacts clearly with the benefit of hindsight, but what about “title fights” that are currently underway? </p>
<p>Has Uber gone to point of market dominance beyond competition, or is it a MySpace awaiting Facebook, perhaps Lyft or another yet to enter entrant to steal its crown? Who will win the title belt for outsourced online labour? Will it be Freelancer.com or UpWork? </p>
<p>The prize for understanding who is going to win is large, and explains the premiums venture capitalists and public market investors alike put on companies that are favoured title fight winners. </p>
<p>Could Tesla become the Google of electric vehicles? Many people think so or that its battery technology advances could lead it to dominate in broader distributed energy industries of the future. </p>
<hr>
<p><em><strong>Read more</strong>: <a href="https://theconversation.com/itll-take-more-than-tech-for-elon-musk-to-pull-off-audacious-new-tesla-master-plan-62884">It’ll take more than tech for Elon Musk to pull off audacious new Tesla master plan</a></em> </p>
<hr>
<p>Much has been made in the media of the market value of Tesla now overtaking both GM and Ford, making it the most valuable US car maker. This is despite the fact Tesla sold less than 100,000 cars vs 10 million at GM and that its revenue is less that 5% of GM and Ford’s. And it’s still losing money. </p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/181098/original/file-20170806-10088-7tfbc.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/181098/original/file-20170806-10088-7tfbc.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/181098/original/file-20170806-10088-7tfbc.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=404&fit=crop&dpr=1 600w, https://images.theconversation.com/files/181098/original/file-20170806-10088-7tfbc.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=404&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/181098/original/file-20170806-10088-7tfbc.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=404&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/181098/original/file-20170806-10088-7tfbc.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=508&fit=crop&dpr=1 754w, https://images.theconversation.com/files/181098/original/file-20170806-10088-7tfbc.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=508&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/181098/original/file-20170806-10088-7tfbc.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=508&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Telsa’s market value overtook that of Ford in March and GM in May.</span>
<span class="attribution"><span class="source">Y Charts and Online Gravity</span></span>
</figcaption>
</figure>
<p>Could Tesla’s rise in market valuation have been predicted? One interesting new data source that may shed light on this is technology talent. </p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/181099/original/file-20170806-23934-12l1gkl.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/181099/original/file-20170806-23934-12l1gkl.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/181099/original/file-20170806-23934-12l1gkl.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=376&fit=crop&dpr=1 600w, https://images.theconversation.com/files/181099/original/file-20170806-23934-12l1gkl.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=376&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/181099/original/file-20170806-23934-12l1gkl.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=376&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/181099/original/file-20170806-23934-12l1gkl.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=473&fit=crop&dpr=1 754w, https://images.theconversation.com/files/181099/original/file-20170806-23934-12l1gkl.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=473&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/181099/original/file-20170806-23934-12l1gkl.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=473&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Long before Tesla overtook GM in market value it won the hearts and minds of US software developers.</span>
<span class="attribution"><span class="source">Paysa</span></span>
</figcaption>
</figure>
<p>Salary monitoring service Paysa also charts the movement of technology talent. It ranks the desirability of companies as employers, using data on technology talent migration it gets from LinkedIn and other sources.</p>
<p>Here we can see that Tesla overtook GM in terms of desirability as a destination for tech talent some four years ago and has remained ahead ever since. This coincides with Tesla’s subsequent rapid rise in enterprise value as reflected by the stockmarket.</p><img src="https://counter.theconversation.com/content/81621/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Paul X. McCarthy does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>While Pandora continues to lead in the US in streaming music all the signs from investors, user momentum and tech talent indicate Spotify is on the verge of seizing the crown.Paul X. McCarthy, Adjunct Professor, UNSW SydneyLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/660462016-10-05T19:16:04Z2016-10-05T19:16:04ZA Chinese firm could buy Twitter in the coming wave of cross-border tech acquisitions<figure><img src="https://images.theconversation.com/files/140194/original/image-20161003-20205-zvsjxy.jpg?ixlib=rb-1.1.0&rect=9%2C21%2C1007%2C358&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Alibaba Founder and CEO, Jack Ma meeting with David Cameron the then UK Prime Minister at 10 Downing Street during his visit to London in October 2015.
</span> <span class="attribution"><a class="source" href="https://www.flickr.com/photos/number10gov/22305846916/">number10gov/flickr</a>, <a class="license" href="http://creativecommons.org/licenses/by-nc/4.0/">CC BY-NC</a></span></figcaption></figure><p>As the financial media speculates about <a href="http://www.wsj.com/articles/twitter-is-expected-to-field-bids-this-week-1475621345">Twitter being acquired</a> by Salesforce, <a href="http://www.bloomberg.com/news/articles/2016-10-04/an-analyst-gives-six-reasons-why-google-should-buy-twitter">Alphabet (formerly Google)</a> or even <a href="http://venturebeat.com/2016/08/03/heres-who-might-buy-twitter/">Apple</a>, companies outside the Californian tech scene have received little attention as potential suitors. </p>
<p>There’s now clear interest, appetite and capacity for cross-border mega deals in online tech, as Tencent’s acquisition of Supercell in June this year has shown.</p>
<p>“Asian strategic investment in European Tech firms has grown steadily over the last decade but this year it has gone through the roof” says London-based Jack Fisher, Senior Business Development Manager of Global Deals Data provider, <a href="http://pitchbook.com/">PitchBook</a>.</p>
<p>Tencent is China’s largest online social media and gaming company. Its landmark majority investment in Finland’s Supercell (makers of the global smash hit mobile game Clash of Clans) valued the 200-person company at US$10.2 billion. This crowned it as Europe’s first “Decacorn” or private startup online tech company to reach a valuation of more than US$10 billion. </p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/140152/original/image-20161003-30459-l2b5z1.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/140152/original/image-20161003-30459-l2b5z1.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=450&fit=crop&dpr=1 600w, https://images.theconversation.com/files/140152/original/image-20161003-30459-l2b5z1.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=450&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/140152/original/image-20161003-30459-l2b5z1.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=450&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/140152/original/image-20161003-30459-l2b5z1.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=566&fit=crop&dpr=1 754w, https://images.theconversation.com/files/140152/original/image-20161003-30459-l2b5z1.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=566&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/140152/original/image-20161003-30459-l2b5z1.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=566&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">In June 2016 Finland’s Supercell (and maker of Clash of Clans) became Europe’s 1st Decacorn (Private tech co valued at over $10Bn) thanks to a majority investment from China’s Tencent.</span>
<span class="attribution"><span class="source">bata/flickr</span></span>
</figcaption>
</figure>
<p>In another Transatlantic mega deal, Japanese Tech Investment Giant SoftBank’s US$31.4 billion back in July acquisition of British chip designer ARM Holdings, whose success has been buoyed by the use of their chips in tens of billions of web connected devices for Apple, Samsung and others is the biggest ever purchase of a European technology company ever and SoftBank’s largest overseas acquisition. </p>
<p>In September last year, China’s other online giant Alibaba hired Michael Evans, the former Vice-Chair of Goldman Sachs, to lead the company’s quest for offshore expansion. Evant has since overseeen five acquisitions, all worth more than US$200 million, and each of them outside China - in Singapore, India, Hong Kong and the US. The latest one is the largest yet — a US$1 billion deal for a controlling stake in the number one South-East Asian e-commerce startup, Singapore based <a href="http://www.lazada.com/">Lazada Group</a>.</p>
<p>While Twitter may not be on the radar of overseas investors, there is now a large and growing stream of international global mergers and acquisitions in the technology sector every month. Cross-border deal flow has steadily increased each year since the emergence of the web and shows how the new economics of <a href="http://www.aimia.com.au/community-news/what-is-online-gravity">“online gravity”</a> is accelerating globalisation. </p>
<p>This new economics has helped forge the five most valuable companies in the world right now — each now valued at more than US$300 billion. They include Apple (with a fortune built on the web connected iPhone), Alphabet (formerly Google), Microsoft (now parent to LinkedIn and Skype), Amazon and Facebook. Two more companies with massive fortunes also built on the incredible economics of the web, the Chinese online giants Tencent and Alibaba, also now enjoy market valuations in excess of US$250 billion each. They now rank among the worlds largest companies. </p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/140099/original/image-20161003-20196-1srvzvw.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/140099/original/image-20161003-20196-1srvzvw.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/140099/original/image-20161003-20196-1srvzvw.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=404&fit=crop&dpr=1 600w, https://images.theconversation.com/files/140099/original/image-20161003-20196-1srvzvw.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=404&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/140099/original/image-20161003-20196-1srvzvw.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=404&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/140099/original/image-20161003-20196-1srvzvw.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=508&fit=crop&dpr=1 754w, https://images.theconversation.com/files/140099/original/image-20161003-20196-1srvzvw.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=508&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/140099/original/image-20161003-20196-1srvzvw.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=508&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Global tech cross-border dealflow is accelerating. October 2016.</span>
<span class="attribution"><span class="source">Paul X McCarthy</span></span>
</figcaption>
</figure>
<p>Since 2000, US technology companies have acquired 230 Asian tech companies with the numbers steadily increasing each year. With even more dramatic growth, Asian tech companies have acquired 373 companies since 2000. Between 2011-2013 Asian tech companies were acquiring between 20 to 30 US companies per year and now it’s double this rate with between 50-60 major deals being consummated each year.</p>
<p>Recent noteworthy large-scale deals include:</p>
<table>
<tbody>
<tr>
<td><b>Acquirer</b></td>
<td><b>Acquired</b></td>
<td><b>Valuation at acquisition</b></td>
<td><b>Date</b></td>
</tr>
<tr>
<td>Softbank, Japan</td>
<td>ARM Holdings, UK</td>
<td>US $31.4 Billion</td>
<td>July 2016</td>
</tr>
<tr>
<td>Tencent, China</td>
<td>Supercell, Finland</td>
<td>US $10.2 Billion</td>
<td>June 2016</td>
</tr>
<tr>
<td>Tencent, China</td>
<td>Riot Games, US</td>
<td>US $400 Million</td>
<td>February 2011</td>
</tr>
<tr>
<td>
Rakuten, Japan
</td>
<td>
Ebates, US
</td>
<td>US $1 Billion</td>
<td>September 2014</td>
</tr>
<tr>
<td>Rakuten, Japan</td>
<td>Viber, Cyprus</td>
<td>US $900 Million</td>
<td>February 2014</td>
</tr>
</tbody>
</table>
<h2>Acquisitions — one of the keys to tech innovation</h2>
<p>Mergers and acquisitions are a key but often overlooked part of the digital economy and central to the success of the global technology innovation ecosystem as we know it. Most of Alphabet’s significant innovation since it created the world’s most famous search engine has been the result of its 190 acquisitions. Google Maps, for example, was an acquisition, so too Google Docs, Gmail, and YouTube. Many elements at the core of Google’s breathtaking commercial success in online advertising rely on innovation from startups that were acquired and integrated into Google’s own internal efforts.</p>
<p>The impact of the web on accelerating globalisation can be seen beyond the tech sector too. Many digitally transformed traditional industries like media, telecommunications and electronics have also become the subject of major Asia-based cross-border acquisitions including: </p>
<table>
<tbody>
<tr>
<td><b>Industry</b></td>
<td><b>Acquirer</b></td>
<td><b>Acquired</b></td>
<td><b>Valuation at acquisition</b></td>
<td><b>Date</b></td>
</tr>
<tr>
<td>Publishing</td>
<td>Nikkei, Japan</td>
<td>Financial Times, UK</td>
<td>US$1.32 billion</td>
<td>2015</td>
</tr>
<tr>
<td>Electronics</td>
<td>Toshiba, Japan</td>
<td>Landis+Gyr, Switzerland</td>
<td>US$2.3 Billion</td>
<td>2011</td>
</tr>
<tr>
<td>Telecommunications</td>
<td>Singtel, Singapore</td>
<td>Optus, Australia</td>
<td>US$8.5 billion</td>
<td>2001</td>
</tr>
</tbody>
</table>
<h2>Not first time there’s been a surge in cross-border deals</h2>
<p>In the early 1990s Japanese consumer electronics giants were on the hunt for Hollywood movie studios. They wanted media, software or “content” as it has become known to complement their hardware. Japanese companies invested more than US$13 billion (nearly US$25 billion adjusted to today’s money) in the US film and television industry, which included the mega acquisitions of two of the six largest Hollywood film studios — Matsushita’s acquisition of MCA and Sony’s purchase of Columbia Pictures. Even Walt Disney turned to Japan for US$600 million in financing for its films.</p>
<p>It remains to be seen whether we may see a repeat of this scale of deal making with any of today’s US online giants given their unprecedented scale. What’s almost certain is we will see more frequent and larger scale cross-border acquisitions of companies up to the size of Twitter (around US$30 billion) and perhaps even at the scale of Paypal or eBay (US$50 billion+). </p>
<p>At a smaller scale again, expect to see many more yo-yo deals with companies criss-crossing the planet to acquire others in their efforts to dominate a vertical market or technology sub-sector. Examples of these style deals include:
</p><ul>
<li> <a href="http://www.leeco.com/">LeEco</a> (Beijing)‘s $10m acquisition of Sydney based <a href="https://octopustv.com/">Octopus TV (London)</a> in January*
</li><li><a href="http://www.carsales.com.au/">Carsales (Melbourne)</a> estimated $15m purchase of <a href="http://www2.chileautos.cl/chileautos.asp">Chileautos (Santiago)</a> in March and
</li><li><a href="http://www.naspers.com/">Naspers (Cape Town)</a> $180m takeover of <a href="http://www.citruspay.com/">Citruspay (Mumbai)</a> last month.
<ul><p></p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/140148/original/image-20161003-20196-e3bgh2.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/140148/original/image-20161003-20196-e3bgh2.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=610&fit=crop&dpr=1 600w, https://images.theconversation.com/files/140148/original/image-20161003-20196-e3bgh2.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=610&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/140148/original/image-20161003-20196-e3bgh2.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=610&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/140148/original/image-20161003-20196-e3bgh2.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=767&fit=crop&dpr=1 754w, https://images.theconversation.com/files/140148/original/image-20161003-20196-e3bgh2.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=767&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/140148/original/image-20161003-20196-e3bgh2.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=767&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">This Chord diagram using seals data from Crunchbase illustrates the total number of Global cross-border technology deal flows since 2000 organised by continent. It shows the increasing amount of criss-crossing of the planet of capital chasing tech deals to consolidate global positions in market segments and technology verticals.</span>
</figcaption>
</figure>
<p><em>*This article was amended post publication to reflect a transcribing error.</em></p></ul></li></ul><img src="https://counter.theconversation.com/content/66046/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Paul X. McCarthy does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Cross-border tech deals are on the rise, meaning the usual expectations on acquisitions are changing.Paul X. McCarthy, Adjunct Professor, UNSW SydneyLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/544832016-03-06T19:05:43Z2016-03-06T19:05:43ZWhy startup investors love online marketplaces<figure><img src="https://images.theconversation.com/files/112787/original/image-20160224-32745-fr9i0p.jpg?ixlib=rb-1.1.0&rect=806%2C530%2C3475%2C1882&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">A third generation of Online Marketplaces that combine workflow and networks are changing the underlying economics of many industries.</span> <span class="attribution"><a class="source" href="https://www.flickr.com/photos/tiffany98101/23790127621/">tiffany98101/flickr</a>, <a class="license" href="http://creativecommons.org/licenses/by/4.0/">CC BY</a></span></figcaption></figure><p>Online marketplaces, also known as platform companies, are sprouting up everywhere and redefining business in every industry. “The Uber of ….” has become shorthand for tech startups looking to redefine the way everything is delivered, from legal services (Sydney-based <a href="https://lawpath.com.au/">LawPath</a>) to Package deliveries (San Francisco-based <a href="https://www.doorman.co/">Doorman</a>), to Lottery services (Gibraltar-based <a href="https://www.lottoland.com/">Lottoland</a>). </p>
<p>Paris-based <a href="http://www.videdressing.us/">Videdressing</a> offers global aftermarket luxury branded fashion and Los Angeles-based <a href="https://dogvacay.com/">DogVacay</a> is an Airbnb-style online marketplace for dog vacations that has created a network of more than 20,000 pet sitters. It has raised more than US$45 million from investors. </p>
<p>Major online marketplaces are attracting the attention of leading technology investors. Last year Sydney-based <a href="https://expert360.com/">Expert360</a>, the global marketplace for consulting talent, attracted A$4 million; <a href="https://www.artsy.net/">Artsy</a> - the NY based global marketplace for artwork - closed US$25 million, and <a href="https://www.shyp.com/">Shyp</a> the San Franscisco based on-demand shipping services marketplace finalised another $US50 million in investment. </p>
<p>There are currently 5,723 early stage private online marketplace companies listed on <a href="https://angel.co/">AngelList</a> the leading online marketplace for investors in early stage technology startups. The average valuation is US$4.5 million - so that is about US$25 billion worth of early stage startups in this area. </p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/112061/original/image-20160219-1283-165q2j1.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/112061/original/image-20160219-1283-165q2j1.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=450&fit=crop&dpr=1 600w, https://images.theconversation.com/files/112061/original/image-20160219-1283-165q2j1.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=450&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/112061/original/image-20160219-1283-165q2j1.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=450&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/112061/original/image-20160219-1283-165q2j1.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=566&fit=crop&dpr=1 754w, https://images.theconversation.com/files/112061/original/image-20160219-1283-165q2j1.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=566&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/112061/original/image-20160219-1283-165q2j1.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=566&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Marketplaces are among the hottest startup sectors of 2016 according to many leading technology investors.</span>
<span class="attribution"><span class="source">TOMASZ TUNGUZ</span></span>
</figcaption>
</figure>
<p>The US Center for Global Enterprise this year <a href="http://thecge.net/category/research/the-emerging-platform-economy/">valued the global market</a> for online platform-based companies at US$4.3 trillion. Leading investors in the technology sector have also predicted online marketplaces and the related software-as-a-service (SAAS) companies will be the hottest areas to invest in 2016. </p>
<p>The reason digital marketplaces are so valuable and sought after by investors is they tend toward a <a href="https://theconversation.com/why-theres-no-pepsi-in-cyberspace-19902">winner takes most</a> equilibrium state. </p>
<h2>The evolution of marketplaces</h2>
<p>Great software used to be created by “hackers” or maverick programmers with a can-do spirit who toiled away in their bedrooms or university dorms to create revolutionary new applications, games and tools. Bill Gates, Steve Wozniak and Mark Zuckerberg are often cast in this role. This is not dissimilar to the modern idea of the architect — the solo iconoclast of Le Corbusier, Jørn Utzon or Frank Gehry who designed the last century’s most memorable buildings and then carefully directed others on every aspect of their construction. </p>
<p>But what if you could create a building more like a beehive — without a complete detailed design plan but instead agreement on principles and a set of rules of exchange, or in other words, using a market. </p>
<p>In his classic and influential essay and later book “<a href="http://www.catb.org/esr/writings/cathedral-bazaar/">The Cathedral and Bazaar</a>” Eric S. Raymond contrasts two methods of developing software — one the “Cathedral” method where a small elite group of developers work on the software, versus the “Babbling Bazaar” approach pioneered by Linus Torvalds who led the formation of Linux, the open source software system that today powers most of the web. </p>
<p>Torvalds demonstrated how great and complex products like a computer operating system could incorporate many people’s diverse ideas. This could be done by using the web as an organising force and a variety of tools to enable systematic incorporation of their labour. Wikipedia is a similar example of a “great cathedral” built with decentralised authority and a series of marketplace rules.</p>
<hr>
<h2>Person-to-person marketplaces</h2>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/112035/original/image-20160218-1283-d4w0fn.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/112035/original/image-20160218-1283-d4w0fn.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=391&fit=crop&dpr=1 600w, https://images.theconversation.com/files/112035/original/image-20160218-1283-d4w0fn.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=391&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/112035/original/image-20160218-1283-d4w0fn.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=391&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/112035/original/image-20160218-1283-d4w0fn.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=491&fit=crop&dpr=1 754w, https://images.theconversation.com/files/112035/original/image-20160218-1283-d4w0fn.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=491&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/112035/original/image-20160218-1283-d4w0fn.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=491&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Person to person marketplaces from Online Gravity.</span>
<span class="attribution"><span class="source">Online Gravity by Paul X McCarthy, Simon & Schuster, 2015, Page 106</span></span>
</figcaption>
</figure>
<hr>
<h2>Where to next — Alchemy marketplaces</h2>
<p>After two generations of online services marketplaces, we’re now entering a third I call Alchemy marketplaces. </p>
<p>The first generation of online services provided Advice marketplaces (forums for review and recommendations such as restaurant review websites and investment discussion boards). A second generation of services enabled Access marketplaces to transact online (such as registering domain names, buying shares or applying for jobs online); and now we’re seeing a third generation of services i call Alchemy marketplaces that combine networks, workflows with real world people and things such as transport (Uber); accommodation (Airbnb) and work (Freelancer.com). </p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/112067/original/image-20160219-1233-1nlrrzq.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/112067/original/image-20160219-1233-1nlrrzq.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=283&fit=crop&dpr=1 600w, https://images.theconversation.com/files/112067/original/image-20160219-1233-1nlrrzq.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=283&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/112067/original/image-20160219-1233-1nlrrzq.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=283&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/112067/original/image-20160219-1233-1nlrrzq.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=355&fit=crop&dpr=1 754w, https://images.theconversation.com/files/112067/original/image-20160219-1233-1nlrrzq.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=355&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/112067/original/image-20160219-1233-1nlrrzq.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=355&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Three Generations of Online Services.</span>
<span class="attribution"><span class="source">Online Gravity by Paul X. McCarthy, Simon & Schuster, 2015, p129.</span></span>
</figcaption>
</figure>
<p><strong>Satellite formation</strong> </p>
<p>In these sophisticated and often global Third generation marketplaces, a number of new trends are beginning to emerge, including formation of satellite businesses, support for agents and matrix-like automation support for third parties. </p>
<p>Once online marketplaces are established and begin to mature, we are seeing aggregation within the marketplaces themselves. Markets that started by connecting individuals to each other are evolving. For example we are seeing Airbnb landlords who own multiple properties with a team of professional staff using the service to let their properties to tenants. </p>
<p><a href="https://www.flatbook.co/">Flatbook</a>, a company based in Canada, offers a booking service that works across hotels and Airbnb properties. It communicates with users from all stages, from taking bookings to explaining where the keys are, all via live chat often from the other side of the Atlantic.</p>
<p>New business models are emerging for companies servicing those in the marketplace itself. Uber started with individual drivers but now there are companies buying and leasing cars to drivers. </p>
<p>Indeed a whole network of smaller specialist companies are emerging around many of these marketplaces. eBay started connecting a bunch of individuals selling second-hand goods to one another whereas today it’s mainly used by small businesses.</p>
<p><strong>Agency support</strong></p>
<p>Many online marketplaces are providing support for agents - tools for small companies or freelancers to use their services to help their clients.</p>
<p>Some online services start out as consumer-facing and then switch to serving businesses. Sequoia Capital backed <a href="https://tokbox.com/">TokBox</a> started out providing real time video connections between individuals. It was a pioneer in being able to create internet based multi-person video chats before Skype and Google offered similar services. Then it changed its business model or “pivoted” to provide services to other companies that wanted to offer video services to their customers — it migrated effectively from being a retailer to becoming a wholesaler. </p>
<p>And many direct to consumer online marketplaces now also provide a facility for companies to create and on sell these services to their customers. Global online newsletter company <a href="https://www.campaignmonitor.com/">Campaign Monitor,</a> for example, provides “white label” services to enable small digital advertising agencies and graphic design firms to use their services and provide these to their clients. </p>
<p>Others are partnering with third-parties to enable a mix of online services with offline partners. The university student jobs marketplace <a href="https://ribit.net/ribit/">Ribit.net</a> partnered with Australian Fintech hub <a href="http://stoneandchalk.com.au/">Stone and Chalk</a> to help match university students with their resident startup companies.</p>
<p>And some are complementing their large automated self-service marketplaces with live and real helpers: the global online services giant <a href="https://www.freelancer.com/">Freelancer.com</a> recently introduced a new “recruitment service” that offers a human agent to help you find the perfect freelancer to match your needs. </p>
<p>Melbourne based <a href="http://marketplacer.com/">Marketplacer</a> is a leading company focused solely on making marketplaces. It has created a platform for creating other platforms. Marketplacer has now founded 7 marketplaces including <a href="https://www.bikeexchange.com/">BikeExchange,</a> which is the world’s biggest marketplace for everything bicycle-related. </p>
<p>And in a kind of a back-to-the-future development, one of the hottest new online marketplaces is not a marketplace for jobs but one for for finding human recruiters — <a href="http://recruitloop.com/">RecruitLoop</a>.</p>
<p><strong>Automation support for other people to build on</strong></p>
<p>Many online marketplaces now allow others to build new online systems that plug directly into theirs and build on top of them with what’s known as an Application Programming Interface or API. This is hugely powerful and will have serious implications for many industries and companies. </p>
<p>Many platform and marketplace companies refer to this as cultivation of their “ecosystem” - a dynamic mixture of business partners and developers that has long been part of the software industry but is now extending into all industries. </p>
<p>A good example is online accounting software company <a href="https://www.xero.com/">Xero</a> which has partnered with banks such as NAB to expedite loan approvals. It does this by sharing Xero customer accounting information online. There’s also a range of startup companies like <a href="https://muru-d.com/startups/profile/vistr/">Vistr</a> that offer cash flow forecasting services. Vistr is built on top of Xero so it means existing users can use it without re-keying any data. </p>
<p>Increasingly as online marketplaces evolve, we’ll see more of this behaviour. The complexity and quality of services that are able to be created on platforms will expand as more markets are built on top of other platforms and services.</p><img src="https://counter.theconversation.com/content/54483/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Paul X. McCarthy, Author of Online Gravity. Owns shares in some global marketplace companies including Zillow. </span></em></p>As online marketplaces mature, a raft of new service-based companies are popping up around them.Paul X. McCarthy, Adjunct Professor, UNSW SydneyLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/212382014-01-01T20:44:32Z2014-01-01T20:44:32ZRocketing regions: the jobs of the future in gazelle headquarters<figure><img src="https://images.theconversation.com/files/38084/original/nhz7qvjz-1387327882.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">High growth enterprises, or 'gazelles', are a growing source of global employment.</span> <span class="attribution"><span class="source">Smithsonian's National Zoo/Flickr</span></span></figcaption></figure><p>Do you know someone who has lost their job in the last few years working in IT, media, finance or retail? These industries and many others are already feeling the pinch of “online gravity” - a special set of economic forces and drivers that increasingly govern business in the age of the web.</p>
<p>Much has been made of the disappearance of jobs due to the digitisation, automation and networking of many traditional industries — most notably in traditional media. But careful global economic analysis has shown the internet has in fact added more jobs than it has destroyed. </p>
<p>According to McKinsey and Company the internet has <a href="http://www.mckinsey.com/insights/high_tech_telecoms_internet/internet_matters">created</a> 2.6 new jobs for every 1 deleted. What’s becoming increasingly apparent however is the location and setting for <em>where</em> these new jobs appear is often not the same for those which were lost.</p>
<p>Online, business today is being influenced by a different set of economic forces than those that exist purely offline. I call these forces “online gravity” – not unlike the forces that led to the formation of our solar system. These forces favour the creation of planet-like superstructures with lots of white space in-between. In a former article (<a href="https://theconversation.com/why-theres-no-pepsi-in-cyberspace-19902">Why there’s no Pepsi® in cyberspace</a>) I outlined this phenomena and here I examine how online gravity is reshaping the future of work. </p>
<h2>Online gravity means more centralisation</h2>
<p>In the new digital economy, more and more companies are able to centralise their employment around their headquarters. This has potentially profound consequences for the future of employment everywhere that have yet to be fully understood.</p>
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<a href="https://images.theconversation.com/files/38019/original/ngvhgm3d-1387281599.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/38019/original/ngvhgm3d-1387281599.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/38019/original/ngvhgm3d-1387281599.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=585&fit=crop&dpr=1 600w, https://images.theconversation.com/files/38019/original/ngvhgm3d-1387281599.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=585&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/38019/original/ngvhgm3d-1387281599.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=585&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/38019/original/ngvhgm3d-1387281599.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=735&fit=crop&dpr=1 754w, https://images.theconversation.com/files/38019/original/ngvhgm3d-1387281599.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=735&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/38019/original/ngvhgm3d-1387281599.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=735&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Online gravity is leading to greater employment HQ-centricity.</span>
<span class="attribution"><span class="source">Research by Paul McCarthy based on LinkedIn data, December 2013.</span></span>
</figcaption>
</figure>
<p>Before the rise of the web in 2000, leading global companies such as Dell, the Personal Computer manufacturer based in Texas, or Westfield, the Retail Property Group in Sydney typically employed one in five, or 20% of their total global employees in their hometown headquarters. </p>
<p>This is great for the regional economies fortunate enough to call these companies home as the company headquarter jobs are generally higher paid, more global in scope and typically include roles in global marketing, global finance, research and development that are not found outside of HQ. </p>
<p>In the past there was a natural limit to the concentration of companies around their HQ. As global companies grew, regional headquarters necessarily emerged. Previously, companies typically became more decentralised as their geographic expansion unfolded, driven by the twin needs:</p>
<ul>
<li> to increase the sales of the company by selling in every territory possible and </li>
<li> to decrease the cost by making things wherever it was cheapest. </li>
</ul>
<p>Increasing the sales in every territory had an unintended consequence I refer to as the “Jaguar effect”. In the enterprise software business and many others where the products and services are expensive, complex and require a high degree of trust and confidence in the vendor, a local very talented and socially connected team in every market has been required to sell the products face-to-face.</p>
<h2>And Goodbye to Jaguar jobs</h2>
<p>From the point of view of expanding or aspirant new global companies, this traditional expansion route required a fleet of “Jaguars” in every major market you intended to serve, and talented team of local managers and sales executives to drive them. But now the days of these Jaguar jobs are numbered. </p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/38023/original/sk3s5gyb-1387285128.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/38023/original/sk3s5gyb-1387285128.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/38023/original/sk3s5gyb-1387285128.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=374&fit=crop&dpr=1 600w, https://images.theconversation.com/files/38023/original/sk3s5gyb-1387285128.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=374&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/38023/original/sk3s5gyb-1387285128.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=374&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/38023/original/sk3s5gyb-1387285128.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=470&fit=crop&dpr=1 754w, https://images.theconversation.com/files/38023/original/sk3s5gyb-1387285128.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=470&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/38023/original/sk3s5gyb-1387285128.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=470&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Previously global expansion needed highly networked sales staff in each local territory resulting in an abundance of Jaguar jobs.</span>
<span class="attribution"><span class="source">http://www.flickr.com/photos/gustavo/169129617/sizes/z/</span></span>
</figcaption>
</figure>
<p>In digital economy enterprises such as personal computing software leader Microsoft, around 40,000 or 40% of its total global workforce of 95,000 employees are concentrated in or around its headquarters in Seattle.</p>
<p>In online media and services, this figure climbs significantly to between 40-80% of the total team. Younger and early stage companies such as Facebook, LinkedIn, Atlassian and Zynga have well over half their employees in their city of initial establishment.</p>
<p>Amazon has developed a famously efficient centralised global e-commerce enterprise that ships to and trades in 66 countries around the world from Argentina to Venezuela yet without the need for the need for local operations, sales or distribution staff in most of these locations. Research based on current LinkedIn data indicates over 91% of Amazon’s 88,000 staff are located in only six of the countries where it has significant on-the-ground operations: US, UK, India, Ireland, China and Canada.</p>
<p>Similarly, Google, Facebook and most other online global ventures trade and derive revenue from customers in most countries around the world, yet have staff and on-the-ground operations in only a select few of these.</p>
<p>As a new generation of companies like Sydney-based <a href="https://www.atlassian.com/company">Atlassian</a> and Austin and Sydney-based <a href="https://www.atlassian.com/company">BigCommerce</a> have clearly demonstrated, without the expense of global field sales staff you can not only sell and support consumer services online but also enterprise solutions - globally and online from one or two well-resourced hubs.</p>
<p>This is increasingly important for policy makers as it means unless your city, region or country is home to and fosters the creation of global digital economy enterprises, the number of high-value jobs available in your area is likely to shrink dramatically over the next decade. </p>
<p>And it’s not just “traditional” industries where jobs are at risk. November’s <a href="http://hbr.org/2013/11/americas-incredible-shrinking-information-sector/">Harvard Business Review</a> chronicles the long-term decline in employment of America’s information industries. After manufacturing, the information sector has had the greatest employment contraction of any sector in the US in the past decade. </p>
<p>While online gravity is leading to many Jaguar jobs disappearing in Western countries through the centralisation and automation of many online services its not all bad news for the developing world.</p>
<p>The World Bank has made the point in its recent report <a href="http://www.worldbank.org/en/news/press-release/2013/09/10/icts-are-creating-new-jobs-and-making-labor-markets-more-innovative-inclusive-and-global-world-bank-study">“Connecting to Work”</a> the rise of open global online labour market places such as Freelancer.com, oDesk and elance means that once connected to the internet, many people in developing countries can now have direct access to employment opportunities that were previously impossible. </p>
<h2>And Hello to <em>Gazelles</em> and <em>Rocketships</em></h2>
<p>MIT economist David L. Birch showed in the 1970s that the majority of national job growth (and losses) in the US came from enterprises with fewer than 100 employees. Nearly 20 years on, Birch refined his thesis to show not all small businesses are equal, with only 4% of these companies - a high growth cohort he terms “gazelles” accounting for around 70% of jobs created. Gazelles are companies that routinely demonstrate consecutive, double-digit annual growth and are now seen by many as the engine room of much future economic development. Follow-on research <a href="http://link.springer.com/article/10.1007%2Fs11187-007-9052-3">“Employment effects of business dynamics: Mice, Gazelles and Elephants”</a> by Zoltan J. Acs and Pamela Mueller has identified Gazelles as “only start-ups with greater than 20 and less than 500 employees” and “only in large diversified metropolitan regions”.</p>
<p>Many of these Gazelles, such as Google, eBay and Freelancer.com, are fuelled by the winds of online gravity and also classify as “rocketships”.</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/38026/original/nfkg79z9-1387285831.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/38026/original/nfkg79z9-1387285831.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/38026/original/nfkg79z9-1387285831.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=480&fit=crop&dpr=1 600w, https://images.theconversation.com/files/38026/original/nfkg79z9-1387285831.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=480&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/38026/original/nfkg79z9-1387285831.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=480&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/38026/original/nfkg79z9-1387285831.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=604&fit=crop&dpr=1 754w, https://images.theconversation.com/files/38026/original/nfkg79z9-1387285831.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=604&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/38026/original/nfkg79z9-1387285831.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=604&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Enabling ‘rocketship’ enterprises to thrive will be vital to future job creation. (Source: x ray delta one CC Rocketships)</span>
<span class="attribution"><span class="source">http://www.flickr.com/photos/x-ray_delta_one/4152453170/</span></span>
</figcaption>
</figure>
<p>“Rocketships” are a new generation of online high growth global enterprises defined as companies that grow from start-up to US$50m in revenue in their first five years of operation. Atlassian, Facebook and Google all fit this definition. </p>
<p>In his 2009 excellent article for the Wall Street Journal, <a href="http://blogs.wsj.com/venturecapital/2009/08/25/how-long-does-it-take-to-build-a-technology-empire/">“How Long Does It Take To Build A Technology Empire?”</a> Scott Austin showed a previous generation of global technology companies such as Micosoft, Oracle and SPSS don’t make it into the Rocketship club, having taken between eight, ten and fourteen years respectively to reach $50m of sales. </p>
<p>Employment is being reinvented and jobs being disrupted are reappearing in different settings and new global enterprises around the world. Policymakers, politicians and parents around the world should be mindful of these changes to best position for employment in a new era of online gravity. </p><img src="https://counter.theconversation.com/content/21238/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Paul McCarthy is writing a book entitled "Online Gravity".</span></em></p>Do you know someone who has lost their job in the last few years working in IT, media, finance or retail? These industries and many others are already feeling the pinch of “online gravity” - a special…Paul X. McCarthy, Adjunct Professor, UNSW SydneyLicensed as Creative Commons – attribution, no derivatives.