The meteoric rise of the big tech firms has established them as the dominant new business models in the post Fourth Industrial Revolution (4IR) economy. Apple, Amazon, Alphabet (Google), Microsoft, Facebook and Tencent are the six largest listed companies by market capitalisation ranging (in descending order) from $0.9trillion (R12.86trln) to $0.5trln. While they have very different niches, they have remarkable similarities.
Each one was founded and run by a computer scientist/programmer or electronic/computer engineer (some dropped out of college) from start-up phase, without generational wealth (inheritance) and introduced aggressive technological innovations offering significant benefit to hundreds of millions if not billions of end-customers directly via digital means.
Two of them (Apple and Microsoft) hail from the Third Industrial Revolution or 3IR (the digital age of computers and the internet), but the other four were started between the mid 90s and mid 00s.
The defining characteristic of the winners in the post 4IR economy is the ability to leverage data and analytics to deliver an unprecedented level of customer centricity in their solutions.
This ability is commonly referred to as Artificial Intelligence, perhaps because some of the technologies like speech recognition and natural language processing give an appearance of mimicking human capabilities.
Certainly, search optimisation (Google), customer content and preference modelling (Amazon, FaceBook) and data centre/cloud computing (Amazon, Microsoft) are also key capabilities that helped create and sustain these behemoths.
Another inescapable factor is size or the “network effect”. This basically means firms are not just big because they are “good” or capable, but are “better” because they are big.
The 3IR already introduced business models that scale at extremely low cost (eg internet-based models). The 4IR has taken it to the next level where having a critical mass of consumers is a requirement (eg you won’t use social media if your friends or colleagues are not on it) and the ability to develop sophisticated machine learning models improves as more data becomes available.
This point is often overlooked in understanding the success of the big tech firms and conversely, over-estimating the ability of start-ups to challenge them.
If this is the global picture, the question is what does this mean in the South African context. A good starting point may be to examine the largest companies with a primary listing on the JSE.
This list includes Naspers, FirstRand, Standard Bank, Sasol, Vodacom and MTN, ranging from R1.5trln to R0.2trln in market capitalisation. Note this list specifically excludes global companies like AB InBev, BAT, Glencore, etc with foreign headquarters and foreign primary listings.
Other than the petrochemicals firm (Sasol), I will argue that these firms are major beneficiaries of the 4IR. To put this in perspective, not long ago primary listings on the JSE was dominated by mining companies (Anglo) followed by FMCG (SAB) and retailers.
Currently, Naspers is, by a huge margin, the largest of the primary JSE listed entities and is indeed a big tech firm, or at least a big tech holding firm via its share in Tencent. However, the bulk of its value (more than 100percent of it) is in offshore entities, making it less suitable for domestic comparison. The other four comprise two financial services players and two mobile telcos that mainly operate in SA and wider Africa.
It is useful to compare the descriptions used for the big tech firms to what local entities do. Do they introduce aggressive technological innovations offering significant benefit to hundreds of millions if not billions of end-customers directly via digital means?
While the scale is not the same as the global big tech firms, I argue that technological innovation and direct (digital) delivery are key factors in the success or failure of players in these industries.
Each of these entities have systems/IT capex spend in the billions if not tens of billions per annum, aimed to a large extent at innovation and improving direct/digital delivery. Let’s unpack in more detail how the 4IR impacts their industries, starting with financial services.
Financial services in SA and globally is experiencing unprecedented competition due to the entry of so-called fintech players in many parts of the value chain as well as a range of established firms (big techs, insurers & retailers) applying for banking licences or forming partnerships with banks.
From an economic perspective this is driven by the perceived lowered entry barriers - post the 3IR producing a web portal or an app is significantly easier and less costly than establishing branch infrastructure. Structurally this puts pressure on legacy institutions to up the game and firms without the necessary capabilities may well be left behind.
However, globally and in SA the jury is still out on whether the new breed of e-banks/fintechs will be successful. Besides niche players in areas like payments (think Paypal and Ant Financial), there are very few successful e-bank players.
This is perhaps largely due to incumbent players having invested heavily in technology to land customer-centric platforms with advanced data analytical decision-making ability across credit, customer interaction and customer value management to mention only a few areas.
The advantage incumbents have over new entrants is not just a large customer base and established brand (and reputation), but also the network effect of huge data sets and ability to interconnect customers - business and retail, employers and employees, sellers and buyers, etc.
The next large 4IR sector is telecommunications, particularly mobile telecommunications. At face value this is a very technology dependent industry with successive "generations" of mobile broadband technology (2G, 3G, 4G, LTE Advanced) ushering in a race amongst players to continuously upgrade infrastructure.
In some ways though, many telco players more closely resemble 4IR players as they dynamically manage service levels across owned and 3rd party infrastructure, prioritise real-time traffic and increasingly source and promote content.
Some also see themselves as financial services players in payments, insurance, etc, leveraging their customer and risk management skills. From my perspective, being responsible for both banking (FNB Consumer) and an MVNO (FNB Connect), both industries certainly benefit materially from the data analytical capabilities that typically define the 4IR.
In my view South Africa is already firmly transforming into a post 4IR economy. The implications of this "revolution" are huge - impacting the nature and location of economic growth and employment.
Dr Christoph Nieuwoudt is FNB Consumer chief executive.
The views expressed here are not necessarily those of Independent Media.