Platforms Win Value Race

Most of the value created in the technology, media and telecom (TMT) space actually is created by the software industry, an analysis by McKinsey clearly shows. That is one more way of describing changes in value (and profit and revenue) in the internet ecosystem.

As the McKinsey analysis of public firms suggests, on a global level, value has grown most for software and consumer electronics suppliers (device suppliers), far less so for telecom and cable TV companies, and a bit less for media firms.

The analysis, of course, is flavored by the fact that growth rates for all these firms vary by region. Relatively ittle of the profit--in any sectors--have been seen in Europe. Service providers have grown fastest in regions such as Asia and Africa. Software growth arguably has been highest in the United States and China. Service providers in many developed markets have seen revenue grown, but in a low single digits range.


There is a clear “winner take all” pattern, as well.

In the 2010 to 2014 period, the top 20 percent of companies captured 85 percent of the economic profit in TMT industries. The top five percent of companies—including Apple, Microsoft, and Alphabet (Google’s parent)—generated 60 percent, McKinsey says.

Increasingly the ranks of top players in TMT are populated by companies that have managed to create and scale successful platforms that benefit from network effects, says McKinsey.

These can be technology platforms (for example, Apple’s iOS), marketplaces (for example, Apple’s app store), or platforms of another type—but in each case these winning platforms increasingly exploit “network effects,” which means the value of the product, service, or the underlying technology increases when more people use it.

That is a familiar reality in the communications business, where the value of any network grows as the number of connections grows.

In the future, one key to success for at least some telecom companies is their ability to create new roles for themselves “up the stack.”

“We believe TMT companies need to build capabilities in four areas, including establishing a strong position in one or more software or services platforms and building ecosystems around platform offering,” McKinsey argues.

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