If you want to make money in the 21st Century, you must invest in platforms, not products. Hence, you need to identify these companies; or cryptocurrencies, with lucrative, or potentially lucrative, platforms.
To explain, a platform is a network; or ecosystem, that provides goods and services to customers. For example, the Amazon (NASDAQ: AMZN) platform delivers goods and digital products like videos.
Correspondingly, Apple (NASDAQ: AAPL) is reinventing as a platform that provides financial services and entertainment, OneZero writer Jathan Sadowski reveals. Thus, Apple now offers games through Apple Arcade, movies and TV through Apple TV, and financial services via Apple.
Specifically, Apple plans to spend $7 billion on music and video content to drive visitors to its platforms in 2019, CNBC estimates. The $7 billion includes $1.7 Apple spent on entertainment in 1st Quarter 2019.
Apple Embraces Platform Capitalism
Apple is switching from selling devices to platform because it could make more money through a platform. For instance, some financial analysts estimate Apple’s platform could generate $7 billion a year in revenues from 100 million subscriptions in a few years.
Therefore, Apple is switching a to business model Sadowski calls “platform capitalism” from traditional capitalism. To clarify, in traditional capitalism businesses make money by selling goods and services.
However, in platform capitalism a business sells access to a platform. Customers pay to get access to sellers, while sellers pay for access to customers.
How Platforms Make Money
For instance, Amazon, Alibaba (NASDAQ: BABA) and eBay (NASDAQ: EBAY) collect fees from both merchants and customers. Meanwhile, viewers pay Netflix (NASDAQ: NFLX), Hulu, Disney +, and Apple TV for access to streaming video.
Effectively, Amazon charges merchants “rent” for access to customers while Alphabet (NASDAQ: GOOG) charges advertisers for rent for access to its SEO platform. Plus Netflix and Hulu charge rent for access to viewers.
Not surprisingly, Disney is trying to avoid paying rent by offering many of its movies on shows through Disney + in the fixture. Consequently, Disney will collect the “rent” instead of Hulu or Netflix.
How Platforms Make Money Through Rentier Capitalism
Moreover, another popular name for platform capitalism is rentier capitalism. In fact, Sadowski calls today’s tech platform model “Landlord 2.0.”
To explain, in Landlord 2.0 owners “rent” digital space to customers. For example, Alphabet (NASDAQ: GOOGL) rents advertising space through Google AdSense, etc., and Amazon rents cloud space through Amazon Web Services (AWS). Plus, Amazon rents advertising space like Alphabet.
When it succeeds, rentier capitalism can be a lucrative business model. For example, AWS generated $7.43 billion in revenues in 4th Quarter 2018, CNBC notes. Notably, AWS revenues make up 10% of Amazon’s quarterly sales. In addition, Amazon reports advertising revenues of $3.4 billion for 4th Quarter 2018, Geekwire estimates.
In addition, Amazon; which owns several rent-charging platforms, reports revenues of $72.383 billion and a gross profit of $27.597 billion for 4th Quarter 2018. Meanwhile, Alphabet reports revenues of $39.3 billion for 4th Quarter 2018. Statista calculates Alphabet’s revenues grew from $32.323 billion in 4th quarter 2017 to $39.3 billion 12 months later.
Originally published at https://marketmadhouse.com on May 1, 2019, in a longer form.
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.