Monday 6 February 2012

About the Future of the Marketing Giants of Silicon Valley

[editor's note: In line with my continuing effort to become more integrated with the online community, today's article is a guest article written by Ryan Wilson, whom I found through]

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Silicon Valley has long been a source of innovation that has changed the world, but the question lies in where most of the current focus exists and should exist. Companies like Google, Facebook and other marketing and media firms in the sector are keeping some of the best minds in the business employed in very high paying jobs.

Did we just use the word ‘marketing firms’? Google does search engines and Facebook does Social Media, surely these are technology firms? Well, the reality is that they are marketing companies due to the fact the majority of their revenue comes from advertising and the selling of advertising.

Google has made some effort to diversify from this, but Facebook is firmly entrenched in the advertising dollars, with around 3.8b of its 4.3b revenue coming from the sale of advertising.

What's the Value?

The question that some ask is "what is the true value that these firms give to the marketplace?" Certainly, they aid in the distribution of information and facilitate commerce. This is a massive thing in itself. What limits the value of these services is the basic underpinnings of the market.

To get value from tertiary and quaternary services the economy still needs to receive value from the primary and secondary industries.

Lets look at the economy from the idea of the manufacture and sale of bread.
  1. Initially a farmer needs to grow some wheat – this is the primary industry
  2. The wheat needs to be milled and made in to bread – this is the secondary industry or the manufacturing sector
  3. Bread needs to be marketed and retailed to consumer – this is the tertiary sector or the services sector
  4. There are two more, less clearly defined sectors called that quaternary and quinary industries. These are both services sectors, but cover specifically research, consulting, information technology, culture, media, health, government, financial planning and knowledge-based service.

From this model we can see that modern Silicon Valley firms like Facebook and Google are firmly entrenched in the tertiary and other quaternary industries. This is a result of the shift in developed nations for the economy to be based around the tertiary and higher sectors of the economy. In the UK, around 76% of the economy exists in the tertiary and quaternary sectors.

Inherent Problems

The problems that exist with this balance are the possibilities for bubbles in the market to be created. As we see startups like Groupon quickly rushing towards multi-billion dollar value, we need to ask ourselves how much room is left? Certainly, there seems to be a lot, but with our best minds being absorbed with working in advertising things to consumers there will come a point where more focus will need to shift back to improving the primary and secondary sectors of the economy – either nationally or overseas.

Eventually, there will come a point where we might see a change in the market, similarly to what happened in the 80’s financial markets, then the dot-com bust in the 00’s and finally another correction in the value of Internet-based services in 2020. We will probably need to push up our global production of goods more, before we can focus on the how we are going to get people to click and buy them on the Internet.


Unknown said...

Very interesting piece, but I ask if you could elaborate more on what happened in the 80's financial markets and the dot-com bust of the 00's and what could be a foreseeable similarity based on what's happening now.

Nathan Williams said...

Hi bdcobbs,

This piece was a guest article, but I believe I can answer.

I think what Ryan was getting at was financial bubbles that burst. In the 80s, the market was high with junk bonds, and then that burst in a wave of defaults. In the 90s, everyone was into dot-com companies, and then in the 00s that burst when people realized that the dot-coms by and large had no revenue.

Ryan sees these giants as being part of another bubble. They generate tons of revenue through advertising dollars, but if the primary and secondary industries languish, there will be no one to advertise and the bubble will burst.

Unknown said...

Very good point, in other words these companies only have the two feet they are standing on which is firmly planted on thin ice and when the ground gives way there will be nothing to fall back on. Thank you for the insight, I look forward to future articles.

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