Within the next five years, Uber and Lyft will merge. They are fighting in the rings now, destroying value, because that is the only way to know the CEO of the future combined company. Lyft, after the recent $1 billion raise led by Google (yes, Alphabet), wants another $500 million. If all the money Uber has raised has been sent to Nigerian Senate, we will be in perpetual recess, enjoying the beaches of Paris and Bahamas.
Uber and Lyft will go the ways of many: Elance/Odesk (now UpWork), Groupon / LivingSocial, Sirius / XM and Rover / DogVacay. I mean, there is warfare right now in how technology companies compete. Yes, you remember that U.S. Marines tagline: “the few, the proud”. That is even a crowd. The tech one is called Category-King and that means only one entity wins. You cannot have two Twitters, two Facebooks, and two WhatsApps but you can have many Salesforces, many HPEs, and many IBMs. Why? The former group belongs to consumer market while the latter group is enterprise focused.
The tech firms are in warfare, and that is good for consumers. In military, we have asymmetric warfare, or asymmetric engagement: a “war between belligerents whose relative military power differs significantly, or whose strategy or tactics differ significantly. This is typically a war between a standing, professional army and an insurgency or resistance movement”.
In the technology world, it is a real asymmetric competitive warfare which involves U.S. tech giants and their Chinese counterparts, but here the asymmetry is not on technology might, but on tactics. It is evident that few Western companies understand Chinese firms. That asymmetry in tactics is causing real problems. Western companies do not know what exactly they are competing against because the Chinese firms are always muted until they emerge. Because they are amorphous, you will struggle to understand them. They are bringing the tactics documented in the Art of War by Sun Tzue which their ancestors have perfected for generations.
Apple may consider buying Netflix, and possibly spend $100 billion, putting its future on TV. That sounds right because one day iPhone and iPad will stop to be magical: they are hardware with finite maturity evolution. Apple needs to find a future on services which will deliver future growth. It has hired some ace performers and also bought rights to Lords of the Rings, as it gears for this future on shows and movies. But possibly making this move, Apple is hedging because the competition has become cloudy. This is not just about Samsung, China is bringing heat. As Fortune Newsletter notes, China is a big concern.
The prominence of Chinese technology companies is impossible to avoid these days, and the company of the moment is Tencent. Competitor Alibaba is better known in the West. Huawei, a network equipment company, suddenly is a leader in smartphones. But Tencent is in now in the spotlight because its products are a leading example of Chinese innovation and its balance sheet has become a source of funds for startups around the world.
Tencent is no Johnny-come-lately. It is worth nearly $500 billion, and its WeChat messaging service is how young Chinese people communicate. It’s also a major video game publisher, a payments processor, and many more things. Its success begets so many other successes. Just as Masayoshi Son’s fortunes were secured because of SoftBank’s major stake in Alibaba, Tencent has saved the South African media company Naspers. Its early stake in Tencent is so valuable that investors have rated the core business of Naspers as worthless in comparison.
These Chinese companies have cash and are entering into new territories. Tencent has invested in Snap (maker of SnapChat), Tesla, mapmaker HERE Technologies, etc. It is possible it could go for Netflix because these companies have resources through China. As they wage their muscles, not just in China, but also in U.S., you should expect more U.S. companies to react.
You do not expect Amazon to make decisions without considering Alibaba. Of course, WeChat has evolved past WhatsApp and that means it is left for WhatsApp to capture it. Baidu is working to build the operating system of autonomous vehicles. The asymmetric warfare, based on tactics, is building up, and many companies will merge. The company Uber lost in China could one day come to challenge it in Africa and U.S. because Chinese firms are becoming increasingly bolder and intensely-globalizing. No territory is off-limit, and that is exciting for end-users because services will improve even as costs drop.
Finally, one thing I cannot tell you is which company that is going to win this warfare. (I know that customers will win.) It looks convoluted for the consumer technology giants. Expect Tencent to buy Snap in coming years and integrate it fully into its ecosystems. The hyper-competition in the consumer tech sector will trigger mergers and consolidations, even as markets correct valuations in the very near future (within three years).
The competition from China in coming years will force many U.S. companies to readjust how they do business.
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