Picture: ALEXEY MALKIN/123RF
Picture: ALEXEY MALKIN/123RF

The jockeying by Microsoft and possibly other US companies to buy TikTok’s US operations shines a harsh light on how the country’s domestic technology giants are falling behind on innovation in social media and other areas of opportunity.

Both ByteDance’s TikTok and Tencent’s WeChat are living on borrowed time in the US after President Donald Trump signed executive orders last week effectively banning the apps after 45 days. The renewed focus brings to the forefront how badly US social media apps have lagged their Asian counterparts.

Consider Twitter, for example. Despite spending about $700m a year on research & development, the microblogging company’s main offering has stayed virtually the same over the past decade. Amazingly, its biggest innovation may be doubling the character count for each tweet in 2017. That is not an impressive return on large amounts of investment spending. Similarly, Facebook’s and Google’s platforms have not been much better. The core functionality of Instagram’s photo-sharing scrollable feed and YouTube’s video search interface have not changed much over the past few years.

In contrast, TikTok has brought significant innovations to short-form videos. Its personalisation algorithm surfaces the most relevant entertaining content for its users, driving the app to be the most downloaded in the world thin 2020; it now reaches 100-million Americans. And while US services languished, WeChat has also become a super-app, expanding from messaging to payment, shopping, gaming and many other features.

Nowhere is the gap more apparent than in the critical and attractive growth market of video games. Demand has soared as consumers turn to video games for in-home entertainment under shelter-in-place orders. According to the NPD Group, US video-game sales rose 30% in the second quarter compared with those a year earlier. And the industry growth spurt may just be starting. Technology advances from cloud computing, semiconductors and gaming engines coming soon are positioning the industry on the cusp of a multiyear wave of innovation. Research firm Newzoo projects the gaming market will grow from about $160bn this year to nearly $200bn by 2023.

And the impressive growth in video games may be more sustainable because they are becoming the social networks of the future. Last week, Activision Blizzard CEO Bobby Kotick talked about this important trend on a call with investors: “Games provide social interactions that connect people more deeply than any other form of entertainment,” he said. “We expect that as new players engage and form in-game connections with existing or new friends, many of them will stay engaged for the long term, and we see this as a really big opportunity.”

Next level of growth

To take advantage of the next level of growth, Chinese and Japanese companies have prudently invested in some of the industry’s best assets around the world. Tencent now owns stakes in the pre-eminent mobile games leader Supercell, Los Angeles-based Riot Games — the maker of the tremendously successful League of Legends PC game, which has tens of millions of players — and Fortnite-developer Epic Games. In July, Sony also made a strategic investment in Epic, citing collaboration benefits of the studio’s industry-leading Unreal game engine, which powers many of industry’s best multiplayer game experiences.

While Asian companies have made smart moves, US companies are not doing so well. For example, in May Amazon.com introduced its first big-budget game, Crucible, only to pull it from the market just weeks later after it failed to gain traction with players. Likewise, Google’s cloud-gaming service Stadia and Apple’s Arcade subscription service have not taken off with consumers. Further, the initial feedback from the gaming community points to another victory for Sony over Microsoft in the coming next-generation console war.

In a stunning development, Microsoft announced on Tuesday that its critical anchor game Halo Infinite will be delayed to 2021 because of development issues, further complicating the company’s autumn hardware launch. As a result, Sony now has a clear advantage with its line-up of exclusive games.

To be sure, Big Tech’s core business franchises are still thriving financially. In July, the companies all posted better-than-expected financial results for their latest reported quarters, demonstrating their ability to generate tens of billions of dollars in profits even during a pandemic. But the technology industry’s history is littered with examples from Yahoo to Blackberry in which dominance in one era can disappear suddenly in the next.

The key signal before the declines is lacklustre innovation. With the rise of Chinese internet apps and Big Tech’s inability to invest properly in gaming, cracks are appearing in some of Silicon Valley’s giants.

Bloomberg

Would you like to comment on this article or view other readers' comments?
Register (it’s quick and free) or sign in now.

Speech Bubbles

Please read our Comment Policy before commenting.