Adapt or Die — Building Ecosystems of Hardware & Software

An asteroid did not kill the dinosaurs, because the dinosaurs murdered themselves first.

Their journey to extinction begun with the violent volcanic eruptions off the coast of India, triggering the massive storms and temperature changes that enveloped the planet.

These magnificent beasts started dying out in the aftermath of climate change, with their final coup de grace capped by the asteroid’s impact off modern day Mexico. The nail in the coffin for these magnificent beasts was their inability to adapt to a dynamic environment.

Adapt or die - this phenomenon is not just applicable to the dinosaurs, but can also be applied to corporations and people.

Today, technology has been the great disruptor and equaliser in the re-distribution of power and longevity for services, products, and accessibility.

Facebook may not be worth its weight in years, but it is worth around US$299 billion - a valuation that is much larger than traditional titans. Even at US$19.35 billion, Twitter has a larger market cap than The New York Times(US$2.2 billion), Burberry ($5.93 billion), and Tiffany & Co ($10.62 billion) combined. 

But it may be too early for these newly-crowned tech titans to rest on their laurels. The winds of change have quietly started, with new, agile platforms gaining user traction by presenting new solutions or services that these tech titans do not cover.

Stand-alone social platforms vs social hubs

The rise of messaging applications will dominate the social landscape in the next year. Presently, the top four messaging apps have eclipsed traditional social platforms such as Twitter, Pinterest and LinkedIn in terms of monthly active users (MAUs).

The current kingpins of the messaging landscape include WhatsApp (900 million MAUs), Facebook Messenger (700 million), Tencent’s WeChat and QQ Mobile (600 million each), Viber (250 million) and Line (220 million).

The reason is simple - messaging has become an ecosystem of services for users, beyond the simple act of sending text messages in 160 characters via SMS.

Messaging apps have now introduced the capability for users to conduct payment transactions, consume rich-media branded content, partake in artificial intelligence, and even play in-app games.

The innovation in this messaging experience first started in Asia-Pacific.

The foremost messaging apps in this region first developed such ecosystems not just to make the whole in-app experience particularly sticky for users, but also in response to the mobile device as the first (and in some cases, only) device for many in-market users.

Line, which has a stronghold in countries such as Japan, Thailand, Malaysia, and Singapore, was the first messaging app to introduce an in-app App Store amongst the messaging players in 2012.

Since then, they have continued to innovate at scale by allowing users to book taxis, listen to music, watch TV, make payments and play games within the Line application.

WeChat, a messaging app which is popular in China, India, and Southeast Asia, similarly allows users to make grocery deliveries, track their fitness, apply for personal loans, and even feature in-app commerce stores for brands - all within one application.

Not to be left behind, Facebook Messenger has achieved a growth spurt in 2015 thanks to their laser-focused strategy to add new layers on top of the core messaging platform.

In August, Facebook introduced a Messenger App Store which allows users to install apps for photos (PicCollage, Pic Stitch), audio (Sound Clips, FlipLip Voice Changer) and GIFs (a GIF keyboard), to provide a richer media experience.

This was subsequently followed by the introduction of a Virtual Assistant “M” within the platform in September, an artificial intelligence feature which allows users to text “M” to make restaurant recommendations and reservations.

With the introduction of personalised recommendations and increasing relevancy for users through machine learning, the monetisation strategy through tie-ups with retail and small-to-medium businesses is huge.

Think messaging is just about connecting with your circle of friends? Think again - for 2016 promises to herald even more exciting innovation in how users will use these apps as a hub for their everyday activity.

Hardware to capture software

Developers will not be able to build businesses and monetise their in-app audiences from just an app as easily as before. Fundamentally, user discoverability continues to be a huge barrier for developers as cost-per-install for applications increase across digital advertising platforms.

In the meantime, while the sheer volume of applications available has increased (twice, to 1.5 million active applications available in the US App Store), the number of user downloads year-on-year (at approximately nine app downloads per month) has not changed.

With more choice, increased cost in user acquisition and unchanged user habits, the landscape for developers who want to monetise their apps through App Store revenue looks bleaker by the year.

Already, more than half of the top 20 apps in the App Store globally (Facebook, YouTube, Messenger, Google Search, Google Maps, Instagram) do not generate any App Store revenue directly, but rely on monetisation and building businesses outside of the App Store.

To capture and retain an audience, ecosystems should be built off hardware, with re-engagement and monetisation through software.

Xiaomi, a relatively young Chinese technology powerhouse, sells most of its devices at cost-price or make very low margins off hardware to capture market share in China. Already, Xiaomi is China’s No. 2 smartphone maker, with over 130 million MAUs and with users using their handsets 115 times a day.

Most of their revenue is driven through their developer community, with improvements to their user interface “MiUI” and the Mi App Store. Xiaomi now makes a plethora of devices such as handsets, tablets, TVs, cameras and even air purifiers.

Software is great for building audiences and distribution, but it takes a combination of both hardware and software to build an ecosystem that can be monetised for the long tail. Businesses such as Airbnb and Uber would not have achieved their unprecedented success today without the brokering of physical goods with distribution through software.

The Hunger Games: Facebook and Apple

“King Zuck” continues to be a shrewd investor in the development of technology. Facebook co-founder Mark Zuckerberg’s acquisition of Instagram at US$1 billion was soon eclipsed by his acquisition of WhatsApp for US$19 billion some two years later.

Facebook may be the king of the multi-app world now (Facebook Mobile, Instagram, Whatsapp, and Messenger), but the world will not be enough for the King.

Zuckerberg is aiming for the stars - and has made a bigger bet on virtual-reality (in particular, immersive content experiences) and machine learning (the Facebook Artificial Intelligence labs) as the future.

To reinforce their commitment, Facebook made a US$2 billion bet on Oculus to invest in the development of the virtual reality sector. The Oculus Rift headset might seem cumbersome and unfashionable to some, but it really is Facebook’s step in finally owning a device (and all related iterations of that) where users could use to connect with each other.

Facebook had very nearly missed the boat for mobile - an oversight which Zuckerberg had admitted, but moved swiftly to act upon, and they would not make the same error again.

It is no surprise who Facebook takes its cues from. Apple, the most profitable company in the world, has sold over 700 million iOS devices since 2007, is responsible for over 9 billion photo uploads to the iOS photo stream, has built a formidable software ecosystem (capturing over 79 per cent of the public sector enterprise market) , and still remains as a brand users will pay a premium for. For instance, more than half of new device activations on Christmas Day in 2014 were iOS devices.

 

Apple is rumoured to be planning an electric car for 2019. Although no authenticated photos of the vehicle - dubbed Project Titan - are available, designers around the world have done their own mock-ups of how they think it should look, including this Italian rendition. Photo: teratime.it

Apple has ventured beyond the Mac to create multiple operating systems - all ecosystems in their own right - such as the Apple TV OS, iOS, Mac OS, and the Watch OS. The TV OS could very well be the bedrock for a smart home, the Mac OS as the fundamental for the Enterprise software market, the Watch OS as Apple’s first foray into owning your body as a “wearable” OS, and finally, the iOS as the ecosystem in a user’s pocket.

Adapt and disrupt yourselves, or you will be extinct

Millions of years since the sun set on the age of the dinosaurs, the data that connects why titans fall sing a similar tune - if they do not adapt or disrupt themselves, someone eventually will.

Ten years ago, the tech titans of today were a breath of fresh air for users to communicate like never before. A decade later, they may not always have their day in the sun if they do not move quickly enough to build stronger ecosystems or to disrupt themselves.

With Facebook making investments into drones and internet coverage, Apple quietly (or not so quietly) working on an Apple car, and new developments such as the explosion of messaging ecosystems and rich-media content, such innovation will only mean that the consumers will truly be the winners - through more accessibility, choice, and convenience.

Imagine if this innovation stretches to more than just the communications industry - but overlapping into sectors such as health, energy and education. The future for technological disruption is bright - and what we see today is really just a hint of what is to come.

Now, that is exciting. I simply can’t wait - can you?

This post originally appeared on South China Morning Post's "The Next Big Thing" — Innovation Section