The digital and technology report for June 2017

Digital360 on 28 June 2017

Uber stalls while Lyft catches up

One company dominated technology headlines this month. Although it’s not unusual for Uber to be in the headlines, June was a PR and operations disaster for the largest tech start up in the world as waves of bad press came to a head.

First, there was the internal investigation into the company culture, which was sparked by an expose blog post back in February. Fast forward, and the investigation has led to at least 20 terminations, a range of sweeping recommendations, and an embarrassing gaffe by a board member.

Second, Alphabet – Google’s parent company – is suing Uber. Alphabet is accusing the former head of Uber’s self-driving vehicle team of stealing 14,000 confidential files while he worked at Alphabet. The executive, Anthony Levandowski, was terminated by Uber in late May.

And finally, there has been a revolving door of executive leadership. After the number of company missteps, investors revolted against Uber’s pugnacious CEO, Travis Kalanick, who was forced to resign. The company is now without a COO, CFO, CMO, Senior Vice President of Engineering – and a CEO.

These are just the major setbacks for the company, which is facing backlash after a number of scandals. And while the company has no strategic leadership, Lyft is now partnering with Google in self-driving technology.

Lyft is Uber’s largest competitor in the ride sharing space, but has been noncommittal in announcing an expansion to Australia.

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Lyft, Uber’s biggest competitor in the US. Image credit: Mashable Australia

Amazon’s big play in groceries

Amazon purchased Whole Foods, an American chain of premium grocers, for 13.7 billion USD (18 billion AUD). This has been Amazon’s largest acquisition to date, the next closest being 1.2 billion USD for Zappos in 2009.

The acquisition is a strategic move into the grocery market – a market that Amazon has been trying to crack for a long time, but has been held back by the difficult economies of grocery delivery. The company is still determined to become an established player in the market as groceries make up a significant share of consumer spending.

There are many obvious strategic benefits to the Whole Foods deal. For instance, it now means Amazon has a range of inner city locations to use as distribution points for its subscription and grocery delivery service.

However, it may not be as simple as that. By servicing Whole Foods, Amazon can build a distribution network at a massive scale without the risk of cost blowouts. By purchasing Whole Foods, Amazon has also purchased a large customer it can supply wholesale, bringing its underlying grocery efforts to massive scale.

It’s a similar strategy Amazon used when building Amazon Web Services, AWS – which now powers up to 40% of the public cloud services market, well ahead of Microsoft, Google and IBM.

So, what does this mean for the Australian retail and grocery market? Although Amazon is yet to launch in Australia, it is looking to get operations up by 2018. This has the local market worried. Since the announcement, almost $4 billion dollars has been wiped off retail shares, including Wesfarmers, Woolworths and Myer.

The arrival of Amazon in Australia would likely cause significant disruption to the Australian retail sector, with the combined sales of Australia’s biggest retailers coming in at over 80 billion USD. In Victoria alone, households spend an average of $149 a week on groceries. There are even some in the Australian retail sector that suspect Amazon is looking to purchase an Australian supermarket chain to replicate the Whole Foods acquisition.

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The size of Amazon's acquisitions in USD. Image credit: TechCrunch

Google makes moves into ad blocking

At first, Google’s move to roll out ad blocking into Chrome seems strange. But the company says it wants to improve the quality of advertising on the web by enforcing quality guidelines for online advertising. In that sense, Google insists the new feature is more of an ad ‘filter’ than an ad ‘blocker’.

According to some reports, almost 30% of Australians use ad blocking software on one of their devices. It’s clear that many Australians, along with other markets like the United States, find intrusive forms of online advertising annoying.

This is a problem for Google, who sells ads over its display advertising network and collected almost 80 billion USD in ad revenue over 2016. Google Chrome is also the most popular desktop browser in Australia, at almost 60 per cent market share.

In fact, this month Nielsen put together comprehensive research on the most intrusive and hated online advertising techniques. Pop-ups, auto-play video and deceptive links top the lists for desktop and mobile. This research is consistent with Google’s recommendations on creating better advertising experiences.

What will the Chrome ad blocker mean for advertisers? Ads that fail to comply with guidelines will be blocked by the Chrome browser. While Google says this is to improve the quality of online advertising, others point out the move increases Google’s control over the advertising market by stopping the growth of third-party ad blockers.

Google is also attempting to build an alternative funding model for publications through a feature called 'Funding Choices'. This feature encourages users to pay for content if they want an ad-free browsing experience.

Does that mean Australians will soon start paying for their news and information? Maybe not. Polling from 2015 shows that 67% of Australians would not pay for online news content ‘under any circumstance’.

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Ranked ad experience for mobile users. Image credit: DoubleClick

Messenger and Instagram rise. Snapchat fades.

Messaging apps are often referred to as ‘dark social’ – in reference to the hidden nature of social sharing on these platforms. That means much of what happens on dark social is hidden to web analytics and advertisers. Regardless, messaging apps continue to grow in their importance with consumers.

Back in April, Facebook's Messenger reached over 1.2 billion users. Meanwhile, WhatsApp reached a similar number in January. For reference, Facebook just reached 2 billion active users, and Instagram has reached 700 million, after a period of rapid growth.

And dark social is a large part of the social web. Some research estimates that dark social accounts for 84% of total social media activity. Despite most of social sharing happening via dark social, 90% of social marketing investment is still made on the public platforms.

Messenger, WhatsApp and Instagram are owned by Facebook. This consolidation is a benefit to advertisers, as Facebook can aggregate user data across platforms and centralise it. While ads in Messenger have been around for months, Facebook is now starting to offer marketing products that integrate across platforms.

For instance, Instagram Ads can now click-through to a Messenger conversation. That means advertisers can target their audience on Instagram, push them to the Messenger app and start a sales conversation. This marketing tactic could scale rapidly with the use of Messenger bots.

Meanwhile, as Facebook continues to dominate the social media space, there is becoming less and less room for other players. Snapchat, the upstart social network founded in 2011, did find a valuable niche with a millennial audience. The company was growing at a rapid rate and eventually went public in April this year.

Snapchat was best known for its innovative 'story' format and photo filters. This competitive advantage was taken away last year when Instagram rolled out similar features into their own app. Since then, 'stories' has been a massive hit with Instagram users, overtaking Snapchat in daily activity users for the feature.

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Image credit: Recode

Cryptocurrencies reach a fever pitch

Bitcoin – the world’s largest and most known digital cryptocurrency – continues its rapid rise as its price reaches new heights. But we’ve seen a Bitcoin boom before. In 2013, the value of Bitcoin rose rapidly, growing from tens of dollars for a single coin to over 1100 USD.

This time, there is another, new player on the block. Ether, the currency of a rival blockchain technology called Etheruem, is currently the second largest cryptocurrency by market capitalisation.

In terms of its point of difference with other currencies, Ethereum allows custom development on top of the platform. This means an individual or organisation can develop a custom ‘token’ on top of the app, leading to a method of capital raising dubbed an Initial Coin Offering or ICO.

There are other theoretical business applications, including the creation of ‘smart contracts’ – that is, financial agreements enforced by software, rather than governments or organisations. Companies, including technology consultancies such as Deloitte, have been developing custom applications on top of Ethereum.

Proponents of Ethereum highlight the versatility and potential of the platform – and therefore its strength over technology like Bitcoin. However, it is not without its detractors, who point out that most of the applications are still untested and theoretical in nature.

Meanwhile, the growth of both Ethereum’s price and public profile has generated significant hype in both the media and in speculative investment circles. Historically speaking, Bitcoin lost around half its value during a crash in late 2013.

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Historical price growth of Bitcoin. Image credit: Coin Market Cap

What to look out for in July

Now that we’ve come to a new financial year, many Australian businesses will have a renewed focus on growing their business. June is a time for reviewing operations, taking care of financials and reporting back to stakeholders – and July is a time for implementing new ideas with a fresh vision.

The Australian awards season is also beginning to open, including AFR’s Fast 100 and Fast Starters, and the Smart Company Fast 50. The Telstra Business Awards finalists will also be announced during July. That means Australia’s high-growth and innovative companies are set to come out of the woodwork and put their best foot forward.

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