In 2009, Nokia was the world’s biggest mobile-phone maker, accounting for 40 percent of the global market and serving 1.1 billion users in 150 countries. The Finnish company had big plans to expand into other areas such as digital transactions and entertainment. It did not quite work out that way. Apple was already beginning to eat into Nokia’s market, and Nokia’s digital dreams came to nothing. The company has now become a shadow of its former self. Having sold its mobile-phone business to Microsoft, it now makes telecoms network equipment.
There are plenty of examples of corporate heroes becoming zeros: think of BlackBerry, Blockbuster and Borders, to name just three that begin with a “b.” McKinsey, a global consulting firm, notes that the average company’s tenure on the S&P 500 list has fallen from 61 years in 1958 to just 18 in 2011, and predicts that 75 percent of current S&P 500 companies will disappear by 2027. Ram Charan, a consultant, argues that the balance of power has shifted from defenders to attackers.
Incumbents have always had a tendency to grow fat and complacent. In an era of technological disruption, that can be lethal. Challengers can achieve scale faster than ever before. According to Bain, a consultancy firm, successful new companies reach Fortune 500 scale more than twice as fast as they did two decades ago. They can also take on incumbents in completely new ways: Take Airbnb, which is competing with the big hotel chains without buying a single hotel.
However, today’s tech giants have built a formidable array of defenses against their rivals. Plus, they buy smaller companies to improve their technology. Google purchased Motorola Mobility for $12.5 billion in order to acquire the company’s portfolio of patents.
These companies also have unmatched stores of information, as well as an unmatched ability to use that information to reshape their existing businesses or create new ones, said Derek Kennedy of Boston Consulting Group. Not only do they know what you want before you know yourself but they can also deliver it to you. Companies can use these combined asymmetries to shift into new areas. Only companies that can afford to make substantial investments in both the physical and virtual worlds, many through acquisitions, will prosper. For instance, with the rise of the internet of things, Coca-Cola uses microchips to track the whereabouts of its bottles. Once those companies have established strong relationships with their customers, they will have a good chance of keeping them regardless of price.