In his new book, Everybody Wants to Rule the World (HarperCollins, July 2021), business analyst Ray Wang describes the future of business. His book predicts that by 2050, the global marketplace will comprise around 50 giant duopolies. In each market, there will be only two dominant giants.
Sector after sector, writes Wang, has already become “a bloodbath” with one-or-two winner-takes-all. “Facebook dominated social media. Amazon took over commerce. Google ruled search. Netflix won the streaming wars. Add the global COVID-19 pandemic in March 2020, and the gaps between winners and losers not only widened, but the pace of change also accelerated.” And this, says Wang, is just the beginning.
In effect, Wang foresees that the same economic and technological forces that created today’s handful of digital giants will work its way throughout the whole global economy. This should be not a surprise to any who understand why digital assets tend inexorably towards winner-take-all outcomes. (If Google offers the best search, why should I use anything else?)
Wang argues that we all need to “understand the digital giants’ DNA, how they operate, why they continue to build exponential barriers to entry, and where their next foray will take them.” In business, the rise of duopolies, says Wang, “represents a life-or-death challenge for your company—no matter what sector you’re in or how long you’ve held a secure position.” In the public sector, regulators need to understand them to effectively regulate them.
Whatever Happened To ‘Digital Transformations’?
Wang notes that “the most popular business buzz-phrase of the 2010s was “digital transformation.” Wang himself led the charge to help firms with their digital transformations. But it didn’t work for most firms. “We did all the right things,” he writes. “We transformed business models. We changed engagement. We were supposed to come out winners. And yet only a few of us made it past the finish line. Suddenly successfully embracing digital transformation was not enough.”
It turned out that the game itself had changed. “Our competition was no longer whom we thought it was,” writes Wang. “Even as direct competitors fall by the wayside and pose less of a threat, competition from nontraditional players continues to increase. In many cases, adjacent value chains compete head on with our companies.”
The New Game: Data-Driven Digital Networks (DDDNs)
The new game, says Wang, involves a recognition that the most important asset in the digital age is data. The winners already are, and will continue to be, those who are able to exploit data in what Wang calls Data-Driven Digital Networks or DDDNs.
“DDDNs apply these massive digital feedback loops to all of their stakeholders — customers, employees, suppliers, partners — and use data – driven insights to mitigate risk, identify new opportunities, improve operational efficiency, anticipate customer demands, and drive dynamic pricing. For example, Google can automatically and dynamically adjust ad pricing based on the popularity of a search term or engagement in a topic. Amazon can identify which routes and markets to expand based on logistic costs and profit margins. By relying on technologies such as AI and the cloud at scale, DDDNs automate many data-driven decisions—such as what products and services to promote in what markets and at what price. This gives them an unfair competitive advantage and makes it even harder for non-DDDNs to succeed.”
Only Three Options
There are only three options for business, says Wang.
Option 1: Become a data-driven digital network and be one of the lucky-few victorious firms over the next decade. “It won’t be easy, but it is doable. You’ll need to innovate both technology and business models. It will require mustering resources, willpower, and ingenuity to attain data supremacy…. Without a business model that generates huge amounts of data at every decision point, you’re dead on arrival.” This in turn will require “benevolent dictator” governance.
Option 2: If that is too difficult, you can “join a coalition of smaller players in your industry that can collaborate on creating a DDDN. These coalitions will play an increasingly important role in enabling competition against the digital monopolies and duopolies.” As examples, Wang cites “Microsoft’s attempt to challenge Amazon through partnerships with retailers like Walmart, Walgreens, and Kroger” and the American Booksellers Association, a coalition of independent local bookstores. Wang foresees that most firms “will choose option two—to partner with others to build a DDDN—to get started. But, sadly, many will not make the investments in resources and money necessary to succeed.”
Option 3: There is no option 3, says Wang. “Can I choose to quietly run my business in my small niche, without the backing of a DDDN and without provoking the giants? The answer,” says Wang, “is no…Like it or not, the only options are to build your own duopoly, join a coalition that can hold its own against the dominant DDDNs in your market, or give up and wait for the grim reaper.”
“While the massive rise of digital duopolies will foster the next wave of disruption and innovation, it will also leave behind a path of destruction. Why? Digital duopolies will usher an era of super-efficient yet extreme capitalism.”
“Policymakers and responsible organizations building duopolies,” says Wang, “must take steps to keep fair competition alive. Successful duopolies will have to abide by guidelines that require: Open technology standards that prevent market lock-in and integration capabilities. Access rights that ensure smaller players can compete on their own merits without being duly excluded. Personal data ownership to ensure users have control over consent and usage of their personal information, transaction history, and other metadata.”
“More than 90% of the current Fortune 500,” says Wang, “will be merged, acquired, or go bankrupt by 2050 in deals that will add up to quadrillions of investment capital. The rich (measured in capital, customers, technology, talent, and data) will get richer, and everyone else will have to scrounge for scraps.”
“Building a DDDN is hard,” says Wang. “It requires a combination of massive computing power, products or services that engage users, AI, and billions in capital investment—a high barrier to entry that ensures only a few players in any market succeed in doing so. If a DDDN already has a foothold in a market, the power of its virtuous digital data feedback loop makes it harder and harder for competitors to catch up to it. Even if they are not already in a market, DDDNs can use their dominance in another market and their value chains to enter new ones much more easily. Most of their competitors are taken by surprise and fail to react.”
Firms attempting to create a DDDN will need to upend their business thinking as shown in Figure 3.1.
“Even those who try to mount a defense have found it an uphill battle, especially since their ability to do the very thing that could save them — investing in innovation — has been largely quashed by a hostile investment environment.”
“The story of how established companies got hung out to dry by investors begins in the 2010s,” says Wang. “That decade saw the financial markets skewed by the concentration of more and more investment capital among the ‘mega-investor’ class. The mega-investors who should have been pushing the Fortune 500 to invest more in digital transformation to compete against these DDDNs, instead became more conservative, demanding higher and higher quarterly profits.
There is a risk that firms attempting to create a DDDN they will fall into seven well-known traps, as shown in Figure 3.2.
See part 2 of this article: (coming soon) an interview with Ray Wang in which we discuss the further implications of this illuminating book.
And read also: