The forces leading the combination of computer power, market dominance and customer retention are getting even stronger. Three digital wars are defining the internet economy again. Investors and industry leaders should have them on their agendas.

The new Digital wars

  • War on a new breed of ecosystems: Digital assistants
    • Amazon can become the world’s most valuable company
  • The content war is fueling gigantic mergers and ecosystem-integrations
    • Those that not own or control content may suffer huge financial losses
  • Nvidia is the king of GPU and controls the hardware AI industry. Will it last?
    • Google is supporting the new TPU technology. This may seriously sink the share price of Nvidia

The first war revolves around a new breed of ecosystems. After Android vs. iOS, the new war revolves around voice-controlled digital assistants. Amazon was the internet giant who first understood the point of having a dialogue with a digital assistant. A few years ago, the e-commerce giant launched Echo, a small cylinder that both hears what you say and can talk to you. Echo can stand in the living room and has Alexa, the digital assistant developed by Amazon based on artificial intelligence, at its core. The dialogue with Alexa is voice based and the search results are therefore not presented on a screen. Thus, Alexa provides only a priority result when prompted, and the result is controlled by Amazon itself, who naturally has started to recommend its own products before others.
Voice-driven search means a serious disruption for Google’s business model, which is based on displaying as many results as possible based on optimal relevance. However, nobody can challenge Google and expect no reaction. The giant from Mountain View has launched its own product series – Google Home – based on Google Assistant. The battle for the living room is getting bloody.

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The second war is the content war, and it is getting increasingly intense. The Disney Group bought 21 Century Fox for 52 billion dollars in December. This is just an example of how the concentration in the media landscape is increasing. It is also becoming  evident that content has evolved into a major power factor in the internet economy. Amazon, Google, Apple, Facebook and other smaller players like Netflix, Twitter and Snapchat are increasingly investing in relevant and rich content for their users.

On the other hand, the number of content providers is decreasing. As an example, three global recorders – Universal, Sony and Warner – account for over seventy percent of all music publishing in the world. This means that those who do not own relevant content themselves or have a superior market share or business model are becoming an insignificant part of the value chain. Most of these companies have to withstand huge losses – as Spotify and Tidal do.

The third war is a hardware one, and influences directly the reach and quality of artificial intelligence. Chips specifically designed to cope with the huge computing power needed to run game graphics on PC and game consoles are called Graphic Processor Unit (GPU). When Google started Google Brain, its famous project for the development of artificial intelligence, the search giant needed processors with superior computing power. They thus needed a reliable supplier of GPU chips and they chose Nvidia as a partner. This gave Nvidia a formidable insight into how to develop the optimal GPU circuits for artificial intelligence, a technology that has found an increasing number of applications over time. From movie recommendations on Netflix to self-driving cars, the thirst for artificial intelligence and computing power has increased dramatically in most industries. Nvidia has followed the trend and is indeed the absolute market leader with a market share of over 70 percent. The stock price has exploded.
AMD and Intel, of course, are not going to sit still watching. These companies have always been sworn enemies. Yet, the fear of Nvidia is so great that AMD and Intel have signed a cooperation agreement and they are going to develop a new and competitive GPU. Meanwhile, Google has apparently got tired of its addiction to Nvidia and has developed a new type of machine learning chip -Tensor Flow Processing Unit – for its data centers. Other giants like facebook or Amazon can quickly do the same.

For consumers, these three wars mean easier access to more relevant content and more services that will make our lives easier. For investors, these wars mean that the focus must be directed to specific key figures. In the ecosystem war, the growth and relationship of market share between Echo and Google Home will be crucial. If Echo keeps winning market share and conserves its dominant position in the market, Amazon can become the world’s most valuable company, even more evaluable than Apple. Investments that internet actors do to ensure relevant content is probably another key to be followed closely. Those who can not compete in the fight for content can quickly see their market value destroyed.
Finally, the emergence of new technologies competing against GPU, such as TPU, should be monitored regularly. If GPU technology becomes outdated in key areas like machine learning and self-propelled cars, we can quickly witness how a new generation of chip manufacturers take over the throne after Nvidia and maybe Intel as well.

This post was first published in Norwegian on e24.no.

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