January 18, 2021

The connectivity revolution is only beginning



Connectivity has reached an unprecedented scale. The access provided by the top seven “super platforms” (Facebook, Google, Amazon, Apple, Microsoft, Tencent and Alibaba) has revolutionized the way humanity interacts. But we are just beginning to become aware of the global implications. The speed at which revenue is growing and the potential of companies exploiting these platforms will surprise investors.

Zoom: an overnight success … born ten years ago

Nine months ago hardly anyone had heard of the Zoom video conferencing system. Now it is ubiquitous and its price has risen 230%, but if Covid-19 had occurred four years ago it is unlikely that it would have achieved the success that it has been. The reason is the availability of digital infrastructures for companies that exist now. Zoom was able to increase its daily users from 10 million in December 2019 to 300 million in April 2020 using the Amazon cloud. These types of platforms are revolutionizing the way companies connect with their customers and that promises many opportunities in the future.

The big bang of connectivity

The connectivity made possible by the top seven super platforms – Facebook, Google, Amazon, Apple, Microsoft, Tencent, and Alibaba – is unprecedented. The size, depth and ease of use of these networks is what has created this paradigm shift.

The size: Facebook has 3 billion users. Depth is the degree to which they are embedded in our lives: the average American spends three hours a day on their mobile, providing vast amounts of data on their behavior to platforms. Lastly, the ease of use means that it has never been so easy to quickly reach the bulk of humanity.

The pace of growth and potential size that can be reached by those who effectively exploit these platforms will surprise most people, and the adoption of 5G will accelerate events.

Reach out to the audience

Before the Internet, if Ford launched a new car and wanted to advertise it in the US, the largest audience it could get was during the Super Bowl halftime commercials, where it could have 100 million viewers. If he opted for an international release, he had to contact all the national television networks in a very expensive process. Today, companies can buy ad placements on Facebook or YouTube and simultaneously reach an audience of more than 3 billion people.

But it also matters who makes up that audience. Businesses can now target multiple demographics with granularity unimaginable until recently. Every dollar spent on advertising is much more effective than before.

Reach scale

Zoom is one example of a company that has grown rapidly, but there are many more. In 2007, Netflix began the transition to streaming content and now has 180 million subscribers. The dating app Tinder was launched in 2012 and has 60 million users today. The Uber car ride app was launched in 2011 and had an estimated 110 million users in 2019.

Jon Guinness - Co-manager of the FF Future Connectivity Fund at Fidelity International
Jon Guinness – Co-manager of the FF Future Connectivity Fund at Fidelity International

In recent years, companies have reached sizes that previously would have taken decades to achieve. They have achieved this by using Apple, Facebook, Amazon and Google to market and sell products, and Amazon and Microsoft to have technical infrastructure.

Before cloud computing, companies landing in a country or increasing their subscribers had to open offices in the country, hire staff, and buy new servers. Now, everything is much more fluid: a company only has to expand the use of the platforms. Also, small businesses can use Amazon logistics to deliver their products. App developers in the Apple ecosystem can sell their products in one country simply by checking the correct box in the software.

The start of a second wave of the Internet

Investors are still very obsessed with the platforms provided by the tech giants and their high growth rates. Many investors wonder if they have been left out of the tech party or if these companies are overvalued and have to correct. We think these are not the pertinent questions. What the future holds for these companies is not necessarily the most important thing, but how the systems and services they provide have created opportunities for a whole range of companies and sectors. That is where the opportunities lie.

We believe that the next phase of technology expansion will bring increased user and revenue growth from a narrow set of well-known players, such as Netflix and Zoom, to a more diverse cast of companies. For example, game publishers like Activision can leverage platforms, dating and social apps can expand their user bases, Internet grocery businesses can reach new markets, and new streaming service providers like Disney + could quadruple their numbers. subscribers up to 200 million.

We have traveled through a first wave of the Internet marked by the conversion of superplatforms into global phenomena. Currently, we are at the beginning of a second wave where companies that use these platforms can use their connectivity to build large international businesses. The connectivity revolution has a long way to go.

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