What Are “Services”

There is a lot of discussion on the Internet about how “services” are essential to tech companies.

Ben Bajarin recently raised the point that even though Google is using their services as a weapon to fend off the proliferation of AOSP (Android Open Source Project) devices, Google’s services are actually only relevant in markets like the US and UK, but much less so in other regions.

What you see with regard to the Google Play services availability is the biggest issue facing Google. It is one that is forcing, in a good way, local companies in those regions to create and bring to market services of their own to support their region. China is the best example of this do date. Granted China’s Android ecosystem is a bit messy with over 100 different app stores but the region is quickly fixing these issues and consolidating.

The fact that Android is being used as an open source platform is not necessarily a bad thing for Google. What is challenging is that they are not making the impact with their services the way they need to be in many of these regions. Their competition in this case is not from the likes of Apple or Microsoft necessarily but from savvy startups looking to solve a problem in their region and doing it better than Google can thus keeping Google out of regions they may wish to compete.

I totally agree with Ben’s argument, but I would also suggest that what we are simply calling “services” should be broken down into certain sub-categories. For example, looking at the Wikipedia table on Google Play availability, we see that “paid apps and games” are available in the majority of countries, whereas books, movies and music are not. Compared to the same chart for Apple’s iTunes store,, Google Play is extremely lacking in books, movies and music but not very different in apps. This suggests that digital distribution of apps is a very different business compared to that of books, movies and music.

The reason why there is a large difference is rather obvious. In the case of apps, Apple and Google are the gatekeepers. They do not have to negotiate with the content owners over whether they can distribute the content in a certain country and at what prices. They make the decisions or the developers make the decision when they submit the app.

For books, movies and music, the rights to distribute content are much more complicated. The content owners have much stronger bargaining power and they often have different agreements in each country. Each country may have their own distributor network which may have exclusive rights for distributing content in that country. Furthermore these distributors might have plans for their own digital distribution which would compete with what Google and Apple are planning to offer.

Hence the difference between Apple and Google Play is most likely the difference in negotiating power, skill and previous relationships with the content owners. Essentially, it boils down to the ability to make deals.

With this in mind, I propose that we break down “services” into the following;

  1. self-owned services: These are the services where the provider has ownership of the content. Examples are search, social network services and web-based services (Google Apps, etc.).
  2. self-controlled services: These are the services where the provider can distribute without negotiating with a strong content owner. The prime example is apps. App vendors are generally quite small and have little bargaining power relative to the service provider.
  3. third-party owned services: These are the services where you are selling content that is owned by a third-party, and that third-party has strong negotiating power over distribution (unlike in the case of apps). Examples are music, books, movies, etc. Distribution of this content was historically done physically through retail networks and this resulted in complex networks and agreements, which are often different in each country. Also this content tends to be much more expensive to create than “self-owned service” content, thus requiring large companies to fund production. These large companies obviously have strong negotiating power.

When we map companies like Google, Apple, Amazon, Twitter, Facebook, Spotify, and Pandora to these categories, we find that no company is strong in all three. Twitter and Facebook are exclusively in the “self-owned services”. Amazon, Spotify and Pandora are exclusively in the “third-party owned services”. Google is mostly in the “self-owned services” and to some extent in the “self-controlled services”. They are however very weak in “third-party owned services”. Apple is strong in “third-partly owned services” and strong in “self-controlled services”. They are however weak in “self-owned services”.

From an international perspective, “self-owned services” and “self-controlled services” are relatively easy for the service provider to provide in many different countries. However, “third-party owned services” are very difficult. Amazon for example has very limited international reach. The fact that Apple has in fact been able to provide their services in a large number of countries is very much the exception.

These three categories will probably have very different dynamics and I sense that it will be very difficult for any single company to excel in all of them. At least that seems to be the case so far.