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The Biggest Threats to Amazon, Apple, and Google

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Amazon (Nasdaq: AMZN  ) , Apple (Nasdaq: AAPL  ) , and Google (Nasdaq: GOOG  ) are celebrated for their innovation. Can they sustain that innovation? What are the biggest threats to Amazon, Apple, and Google? I recently asked Inder Sidhu, Senior Vice President of Strategy and Planning for Worldwide Operations at Cisco, and the author of Doing Both: How Cisco Captures Today's Profit and Drives Tomorrow's Growth.

Mac Greer: Let's talk about a few more companies in terms of innovation, and I want to get your thoughts on both, on the disruptive and the sustaining innovation fronts. Let's begin with Apple.

Inder Sidhu: Apple is one of those companies that does sustaining and disruptive innovation well. I think that they have got their existing set of very cool, slick gadgets, the iPod and so on and so forth, the iPhone and such, and they are sustaining innovation where they keep improving those every year. But then they also have disruptive innovation in terms of establishing entirely new platforms and things like the App Store, etc., where they are following more of a platform strategy to be very sustainable for the long term.

Greer: And what is the biggest threat to Apple?

Sidhu: I think Android would probably be the biggest threat to Apple. The first time Apple got disrupted was by the PC, and that was because they tried to do everything high-quality, but do it in-house. Once you have a whole ecosystem of people outside of Apple that started generating all sorts of applications and hardware process innovation, etc., Apple got disrupted and left behind. This time around, Apple is being far more open; they are both open and proprietary at the same time in kind of a funny way, right? They still do everything themselves, or a lot of things themselves, but they are open to other people's applications that write on top of their platform.

Now what you could end up seeing is something like Android-based smartphones, for instance, proliferating very rapidly. So you get a whole ecosystem working that will speed up the rate of innovation dramatically, and Apple will sort of need to keep up with that. Basically, disruption will primarily come from open, non-proprietary sort of solutions.

Greer: And next up, Google. How is Google doing on both the disruptive and the sustaining innovation front?

Sidhu: I think Google does well on the disruptive innovation side. The challenge that Google's got -- Look at them five years ago, and 99% of their revenue comes from one business model, which is search-based advertising. You look at Google today, probably 95% of that revenue comes from that same one business model. And this despite the fact that you have got their engineers spending one day a week trying to think of new ideas that can diversify their business model, five years later, it is still 95% of their business coming from that one business model. So if for some reason that business model gets disrupted, they could be potentially in a world of hurt.

Now it is a very good business model, but it could get disrupted. For instance, if someone comes up with a more compelling business model for online advertisers or more local companies like Baidu (Nasdaq: BIDU  ) that have a stronger appeal in their home countries -- if those things start to happen.

Google is a company where you have to know what to look for. The fundamental paradigm of Google is, "I want to go find something. I type it in. I search for it." So I am searching for content. If the world starts to turn around, as it is happening with social media networks, where instead of you finding content, content finds you based on the communities that you participate in, and as that starts to happen to a greater and greater degree, people might say, Hmm, I don't know if I really need to go search all day long to find the right things in Google. It is a very efficient search engine, but I'm still having to search for things. If instead, stuff can come to me based upon me being characterized through various social networks or other explicitly mentioned or implied preferences -- content finding you, instead of you finding content -- if the paradigm starts to reverse, that is something that could actually impact and disrupt Google over time. For example, somebody the other day said, "Hey, I am looking for something. I am just going to go to Twitter and see because that is probably a better place for me to search, from like-minded users on a particular topic, rather than going to Google."

Greer: Facebook just crossed the 500 million-user mark. To what extent do you see Facebook as a threat to Google?

Sidhu: I actually do see them as a threat to Google, and again, it is tied to this whole notion that with Facebook, what people are doing is they are expressing or implying their preferences for certain kinds of information and then passively that information gets served up to them, right? As opposed to Google, where you have to actively go out and search something. So I think the threat is going to come from Facebook to Google in two dimensions. One is stuff gets served up to you instead of you having to search for stuff and second, people are just going to spend much more time on Facebook as their sort of home environment as opposed to the Google webpage or the Google portal as their sort of native desktop home environment. So those things will start to eventually crowd out Google, in my opinion.

Greer: And in terms of disruptive and sustaining innovation, how about Amazon?

Sidhu: Amazon is kind of an interesting one, right? Because Amazon, I think, does both disruptive and sustaining innovation. They have got a couple of businesses, right? They have got the book business, which they continue through sustaining innovation, they just keep making better and better and better, right? Better logistics, better fulfillment, better algorithms for matching what you are buying for what you might need to buy, etc., right? So Amazon does that well.

They are also trying to do some disruptive innovation in terms of saying, OK, we are going to serve up cloud-based infrastructure in the form of storage and computing resources, etc., so they are kind of an interesting company that does both, and I think that they have a good model.

Greer: What is the biggest threat to Amazon, do you think?

Sidhu: I think that on the book side of the business, I think that the iPad could be a big threat because for every hundred books Amazon sells in a paper format, they sell 143 books in an online format, right? And that 143 is increasing every day and every month. So let's fast-forward a couple of years and let's say that there's three electronic books for every paper book that is bought, and if people really start to think of the iPad-type of devices and so on and so forth, that is something that could disrupt a business somewhat. The other thing that could happen is if you have publishers who own content, start doing exclusive deals and so on and so forth. They could get some disruption from being locked out of certain kinds of content. That could be one thing. That is on the electronic side.

On the physical distribution side -- someone like a Wal-Mart (NYSE: WMT  ) says, I am going to make same-day local delivery from a local warehouse available to you in a format where you can go return it to the local warehouse if you need to. Some logistics-oriented companies; companies are very good at logistics, whether it is a Wal-Mart or a Fed-Ex (NYSE: FDX  ) , they could potentially disrupt them.

My colleague Jeremy Phillips also thinks Wal-Mart could pose a threat to Amazon. And Jeremy's got the stats, charts, and Miley Cyrus references to prove it. Check out Why Amazon Should Fear Wal-Mart.

Google is a Motley Fool Rule Breakers selections. Amazon and Apple are Motley Fool Stock Advisor recommendations. Mac doesn't own any of the stocks discussed. Try any of our Foolish newsletter services free for 30 days. The Motley Fool has a disclosure policy.

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  • Report this Comment On July 22, 2010, at 4:34 PM, guussie wrote:

    Interesting insight! Google (Android) is a threat to Apple. Apple (iPad) is a threat to Amazon. I think Sihdu forgot to mention that Amazon is a threat to Google...

    Any deeper insights here?

    Wasn't Greer trying to go beyond Apple, Google and Amazon? Aren't we investors looking for the "next big thing?

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