Internet services market
Platform-centric approach accelerating convergence
The phenomenal growth of OTT services is driving a market that is set to become the biggest digital tech market in the next five years. A handful of American and Chinese heavyweights dominate the scene, each offering a vast array of services through a marketplace underpinned by a technological platform, with a growing focus on paid and transactional services.
The online services market will be out earning telecoms by 2025
The OTT services market (which includes public cloud solutions, digital content, online advertising – on search engines and social media sites in particular – and e-commerce commissions) is massive: generating close to 729 billion EUR in 2019 and forecast to grow by an average 12% a year between 2019 and 2023, rising to outearn telecoms in 2025. Asia-Pacific has been the biggest market since 2015, thanks to its demographic weight and more efficient monetisation of communication, e-commerce and video game services. North America is, however (by far), the regional leader when it comes to cloud services, video and paid content. Together, these two regions stand well above the rest thanks to their ability to monetise paid services, which account for the bulk of online revenue.
Free and for-pay services virtually tied
OTT market progression by type of financing
An American ecosystem being challenged by Chinese heavyweights
The Internet services sector is heavily dominated by American tech giants, each of which has its own areas of specialisation: Google in search and free video, Facebook in social media and communication tools, Amazon in e-commerce and the cloud, and Apple indirectly in mobile apps. Each of these giants started out in a very different arena but, more and more, all are beginning to market similar services. The only companies that may be capable of taking on America’s hegemony are Chinese goliaths (Baidu and especially Alibaba and Tencent, whose market caps were only half those of US titans in mid-2019), which are starting to expand their international footprint. Local OTT ecosystems (excluding e-commerce and sometimes content) are typically underdeveloped, except in South Korea and Russia.
US OTT leaders' only real rivals are in China
Top 10 OTT players' market cap as of mid-2019
New platforms emerging around new services
All of the Internet leaders use the same two-sided platform approach, leveraging a flagship product and combining a set of technological tools to facilitate third-party developments and the creation of a marketplace. It is typically this role of intermediary that enables them to then generate revenue (advertising, commissions on sales). New services and technological building blocks are challenging dominant platforms (Google and Apple’s app stores, social media, Amazon Marketplace) by offering new ways to aggregate services, e.g. using voice assistants (currently dominated by Amazon’s Alexa), mobile communication apps (WeChat and Line being two frontrunners) and new social media sites (like Instagram and TikTok). Diversification is thus vital to enhancing the platform to make it more appealing than the competition.
Facebook still tops download numbers, alongside TikTok
The most downloaded mobile apps in 2019
The rise of phygital
This logic of continually pushing out the platforms’ boundaries is creating Internet giants whose positions extend far beyond the world of software and online services. All of these players are now working to forge a foothold in the physical world as well, through new devices: smart speakers, smart watches, virtual reality headsets, consoles, glasses (in future) and even in everyday objects like cars, and appliances, that are now becoming connected – typically by offering a specific version of their technological building block. This drive for increased presence in the physical world even extends to forays into robotics, notably service robots (leveraging their dominance of artificial intelligence) and opening physical shops, a prime example being the Amazon Go cashier-less stores.