The FANG companies (Facebook, Amazon, Netflix, Google), a term coined by ‘stock jock’ Jim Cramer, are grouped because they are the best performing technology stocks on the NASDAQ in recent times. Despite the relatively poor performance of Tech stocks in the last 3 months (GoPro -60%, Tableau -60%, Fitbit -60%, LinkedIn -56%, Marketo -46%, Twitter -44%, Fireeye -44%, Splunk -40%, Hubspot -40%) the recent Q4 earnings calls for Facebook and Google have been positive (both reporting record profits and revenue growth – Facebook – $1BN Profit, 52% Rev growth; Google – $2.8BN FCF and 18% Rev growth). These companies are consistently meeting or beating market expectations.
In this post I explore the underlying similarities between the FANG companies, beyond market out-performance, and pose some ideas on how to compete with these giants of the internet.
They each have a similar origin story:
Each of the FANG companies started off as gateways to existing infrastructure, albeit in different domains. Facebook was an entry point to the social lives of a pre-existing network of college students at Harvard. Amazon started its life as a digital portal to a network of booksellers, preferring not to own inventory but to order off this network. Netflix began with physical DVDs and the US postal service providing consumers “on demand” access to movies delivered to your doorstep. Finally, Google created (through page rank) a new and very much improved way to search existing webpages, so good that it became the ‘start line’ for most people’s internet journey.
Instead of recreating the valuable underlying assets, the FANG companies have made the underlying assets in their domain easier to access. As the world has moved to digital, distribution has become very cheap (free in most cases) and the FANG companies are now the major points of distribution with significant power and monetisation potential.
They have subsumed their respective incumbents:
Each company now controls, to varying degrees, the entry point for customers to the category in which they compete. Facebook has handed advertisers much more targeted access to consumers of media content than traditional online publishing and in doing so is now becoming a preferred media platform. Amazon’s e-commerce efforts are growing (in addition to AWS) providing not only buyers but 3rd party merchants with access to search and fulfillment of pretty much any consumer product imaginable. Netflix’s meteoric rise is due to its access to exceptional content (and some less compelling content… but that’s the business model). This content is the same that major TV networks (like NBC in the US) have used to monetise in the past, but Netflix is now the entry point. Google, is similar to Facebook in that any company that wants to be discovered by a potential customer has little choice but to promote themselves through Google (there are many SEO businesses built around this fact alone).
This power over the customer gateway, by extension, gives the FANG companies power over the companies actually supplying the valuable assets – media content, videos, goods, insurance, houses etc.
How to compete in a FANG world?
“Why would I do that?… Google could easily do that…” is a phrase often adopted by incumbents or startups looking to compete with the FANG companies. And it certainly seems that way on the surface. By owning the consumer gateway the FANG companies have been able to modularise, commoditise and, where necessary, augment (e.g. Netflix Original series) their supplier base – whether it is content producers, suppliers, merchants, publishers… basically anyone who can be found on the internet. But don’t despair… there are a few ways to compete:
1) Build new consumer audiences to side-step the ‘FANG entry point’
There are many examples of businesses already doing this in a compelling and creative way. They typically focus on niche verticals such as property or auto or accommodation and offer a creative way of configuring the underlying assets. In Australia – think of companies like RealEstate.com, Cars.com and globally AirBNB or SnapChat.
2) Build new consumer audiences tapping into device functionality
Messaging, email, sensors, pedometers are potential entry points that are available on today’s smartphones but (with the exception of the mobile OS) represent opportunities to build new audiences. Whatsapp and WeChat have done this but equally, Strava and FitBit are doing the same.
3) Build enterprise audiences through integration into existing enterprise processes/workflow
FANG has only partially penetrated the enterprise. Yes, there are enterprise equivalents (e.g. Yammer) but there are also options to create new entry points bringing Artificial Intelligence, Natural Language Processing and Machine Learning to enterprise-level users. Think of copying in an ‘intelligent calendar assistant’ to your email to organise your next meeting or creating workstreams for your project on Slack. While there is potential for this entry point, FANG companies are also building open AI platforms like Google’s Tensor Flow or Facebook’s open sourced hardware behind its AI technologies. This may mean companies focused on enterprise will become reliant a part of FANG stack – a dependency that will be difficult to shake.
The Next FANG(s)…
The FANG companies aren’t just the incumbents in a digital world – where web and now mobile scale has brought billions of people to these entry points- they are also relatively young. They have dynamic leadership, they hire the best talent in the world, they are agile in their approach to executing their strategies and they have a lot of cash to invest in the latest technologies. Today, there are a number of companies that could be the next letter in FANG… AirBNB, Slack, Alibaba, Uber… all will be revealed in good time. Perhaps it will be a company that becomes the entry point to a network of intelligent machines? Or the organisation that cracks autonomous navigation? Some things are certain – it will be global, not parochial and it will most probably be started by somebody from the FANG ecosystem.