If you look at the top 10 Forbes tech companies you can see several interesting things. Here’s the list below. See what you can spot:
The first obvious thing is that most of them are from the US. Second – in the US, most are relatively young companies, with the likes of Alphabet (Google) and Facebook being very young. The youngest companies also have something else in common: their business model is based on advertising. Simply put – they capture their users’ attention and profile and then show ads.
The other companies – not so much, outside of Tencent.
Advertising has been the go-to business model for tech companies for quite some time
Now – no one can say that advertising based models are bad – it seems that two companies managed to get most of the advertising budgets in less than two decades, displacing large media and advertising conglomerates.
The picture, however, is a whole lot different if you look at the top 10 companies, independent of whether they are a tech company or not.
There’s not one single advertising based company in the top 10.
The anomalies that stand out are Berkshire Hathaway (investment) and AT&T(telecom). The other companies are all retailers of something. Their own products, drugs, oil you name it. Even the two anomalies are related to commerce. If you look at Berkshire Hathaway’s portfolio you will notice that it resembles the list above quite a lot. AT&T is technically a retailer of telecom services with a quasi-monopoly on the US market.
Commerce based business models are the future of tech companies
I’ve noticed this idea in two key areas:
- most of the new business models that are emerging in China are not advertising but commerce based. This is due to the fact that China’s VC scene is more grounded in a historic perspective of trade rather than advertising.
- Shopify’s growth has been largely ignored by Sillicon Valley due to them not being related to the crowd consensus. Its stock trades at 40 times the list price 3 years ago
My guess is that the future of tech businesses is more commerce related than advertising, payment or any other niche model. Commerce is at the basis of our society and as long as we’ll have a functioning global society (not guaranteed, btw), commerce will make our world better.
The post Advertising versus Commerce based business models appeared first on Netonomy.