Making sense of whats happening in tech

Last year had its fair share of dramatic news, from the war in Ukraine and rocketing inflation to the tech bubble starting to burst and crypto wobbling. But it was less a year of “black swans” (rare yet consequential events) than one of “grey rhinos”: dangerous beasts hiding in the savannah ready to strike, yet relatively large and slow-moving – and hence clearly visible if you know where to look.

2023 will have more of the same, with opportunities and challenges that are already visible coming to the fore. Here, I outline a few thoughts on the year that was and the year to come, focusing on the intersection of strategy, technology, disruption, and ecosystems, and highlighting what has caught my attention and how I make sense of it.

The macro picture and its implications for strategy and tech

Starting with the big picture, technology valuations finally began coming down to earth, with rising interest rates and the dwindling of excess capital chasing opportunities. The macroeconomic train-wreck that followed Russia’s invasion of Ukraine and the inevitable surge in energy and raw material costs was a cold shower that weaned governments and central banks off their go-to economic levers: monetary expansion and quantitative easing.


Ever since the global financial crisis, central banks’ ballooning balance sheets have been used to mitigate or at least defer financial problems and fuel the shadow banking system. This has led not only to reckless expansion, but also to bubble dynamics, with FOMO driving pricing, and giving over-extended companies little motivation to deal with underlying problems. For all their talk of “credit tightening,” central bankers, egged on by governments around the globe, would have been happy to keep this merry-go-round of credit spinning round – just as they did with COVID. Yet dramatic rises in energy and food prices, incurring knock-on costs for firms, forced reluctant central banks to raise interest rates and, crucially, reduce liquidity to the secondary markets.

As I wrote in Harvard Business Review last June, the time for a correction had come. 2022 marked the beginning of the end of both naive tech excitement and the dominance of 101-level platform thinking, such as the obsession over network effects (far less potent than markets believe), market share (not that critical in differentiated markets), and growth rates (which indicate current demand rather than profit). When capital isn’t chasing opportunities, and vague promises of growth won’t cut it, companies must tell a convincing story of how new technologies and markets will translate into investment opportunities. Meta’s bold but unsubstantiated bet on the Metaverse is a case in point.

Whither Big Tech? Price correction vs. patterns of gatekeeper dominance

The price correction in Big Tech firms, however, will not alter their dominant position in the economy. Existing pricing had baked in assumptions of extreme dominance not only in their current markets, but also adjacent ones. As it turned out, Big Tech was either poorly positioned for these, or unable to conquer them – as evidenced by Google’s exit from the gaming market with the unceremonious winding-down of Stadia in early 2022. Apple has starved Meta of advertising revenues and continues to build strength by extending its multi-product ecosystem, while Amazon has also gone all-in on personalised recommendations.

There is also a natural limit to growth in advertising spend, and Big Tech has been challenged by the increased sophistication of non-tech players in serving and connecting to their customers, the (as yet muted) impact of regulation, and potential competition from TikTok. All Big Tech, and some non-tech as well, is trying to enter the “SuperApp” space, covering an ever-increasing set of needs, a strategy that doesn’t always pay off.

In all, the oligopolistic structure of the market, with a few key players dominating, remains. Regulators are scrambling to keep up, wielding ineffective tools that assume stable and well-defined markets. Despite that, there is a desire to scale this steep learning curve – facilitated by the range of regulatory solutions offered by different jurisdictions. No-doubt, the EU’s Digital Markets Act is limited and backward-looking – but it has helped stimulate vigorous debate on tech regulation.

In 2023, I expect this debate to continue – albeit with a “home advantage” for Big Tech, which has the luxury of sponsoring lobbyists and research alike. Soon, though, the realisation will dawn that there are structural differences between true gatekeepers, who have the structural advantage of de facto capture of end users and can thus abuse their ecosystems if they wish (think: Apple), and those who run far less “sticky” platforms and ecosystems, undermined by multi-homing of users and complementors alike (think: Uber).

Side-effects of Big Tech contraction and the shifting nature of competition

While advertising revenues have been driven down more by competitive dynamics than by regulatory pressure, the fact remains that Big Tech will look for revenue growth elsewhere. Big Tech dominates AI as well as analytics, with AWS, Google, and MSFT dominating the hyperscaler space. As AI matures, Big Tech offers will start to encroach some of the traditional B2B providers, such as those focusing on ERP and CRM, like SAP and Oracle. MSFT’s recent $10B tie-up with OpenAI suggests it wants to compete directly with Google, and expand its offering on the basis of its platforms.

How AI develops will shape the opportunities for players – including smaller ones, who may be able to draw on a broader variety of “off-the-shelf” offers. Beyond that, Big Tech will push to redefine more markets, especially since its core revenue sources can only grow so quickly, and firms’ valuations imply expansion. While regulation may not have managed to constrain Big Tech in the aggregate, it will define what firms are allowed to do, and how other firms can complement it, making regulation a real strategic issue.

To take a broader perspective, the nature of competition itself is shifting. Schumpeter, one of the earliest theorists of technological change, started his career by marveling in 1911 at the entrepreneurs who brought on the waves of creative destruction, usurping large companies whose dominance, he reckoned, was bound to be short-lived. Yet, in an equally influential book from 1945, Schumpeter changed his tune, concluding that the innovation process had been subsumed by large corporations that had discovered how to harness individuals’ genius and had the resource base to make it all work.

Today, it seems increasingly clear that we’re living through a third model. Here, innovation happens not only through large corporates but also smaller companies, whose ultimate objective isn’t to displace existing incumbents but rather to position themselves as complementors. By becoming irresistible acquisition targets, such firms can enrich entrepreneurs while cementing the dominance of established firms, which view even stratospheric valuations as a fair price to ensure their ongoing dominance. This is what makes regulation in tech M&A so crucial, and in 2023 we will see whether some of the major deals of 2022, such as Microsoft’s $69B acquisition of Activision, will go through as proposed, or if regulators, concerned with the lack of true competition under a “Mark III” model, will try to push back.

How to build better ecosystems in a tight market

While dominance from a few gatekeeper firms may be likely, it’s undeniable that technology changes the nature of competition, making ecosystems all the more relevant. As the naive application of platform theory finally falls out of favour, most firms will (or at least should) participate in someone else’s ecosystem rather than vaingloriously trying to orchestrate their own.

Working with companies building ecosystems, I saw with Evolution Ltd a number of common and frequent mistakes, so I think an integrative framework can help. As our newest White Paper observes, firms’ most crucial decisions now relate to choosing their roles wisely- try to partner and participate, rather than own and orchestrate, as well as consider how they can build consistent ecosystem portfolios.

As credit is now far tighter, ecosystems as a means to expand have become arguably more rather than less relevant. Instead of wasting millions in the vain attempt to become orchestrators, firms should skirt the “ego-system” trap by broadening out as partners without tying up much capital.

To succeed in ecosystems, as I explain in this video, you must be crystal clear on two questions: why bother to engage in the first place, and what specific ecosystem play you should follow. Almost as important, though, is the “how”: the specific steps taken to make an ecosystem work, which is where many large companies, from GE to Microsoft, have failed over the years. Only a few weeks ago, Maersk disbanded the ecosystem it had put together with IBM, where they leveraged blockchain technology to provide a data layer to accompany shipments – presumably because they didn’t take enough care over managing complementor dynamics.

Lessons from sectors that transform

As for consumer-focused multi-product/experience ecosystems, which connect products and services to offer convenience or lifestyle benefits, 2022 saw a shift from “feasibility” to “deployment. To illustrate, I wrote two LBS case studies on the “internet of food,” showcasing how appliance manufacturers, app developers, and content specialists are collaborating and competing through a small number of ecosystems. This work also highlights the role of information standards and interoperability – a strategic variable for now that could become a regulatory requirement in future.

Looking at ecosystems in depth reveals an ever-lurking question: Where should a firm go, and where does it all end? Even Big Tech has had its fingers burnt (sometimes more than once) when moving into wellness and healthcare. How should a firm contemplating expansion decide where to engage, and when to steer clear? And even once you have engaged, how do you decide whether to go it alone by vertically integrating (as Tesla seems to be doing in most fields) or build a collaborative web of relationships? These are among the issues I intend to research this year.

Another theme in 2023 will be the revenge of the physical, as it tries to encompass digital as well. Traditional retailers have begun to recognize their role not only in the distribution process, but also in capturing information on customers. Large retailers are turning to advertisers and competing with Amazon for consumers’ time and attention – which is what marketeers are happy to pay for. I predict that physical players will redouble their efforts to hold on to their data lock, stock, and barrel, and not give it up in return for benefits that remain unclear.

The metaverse, regulation and Digital Social Responsibility

2022 was the year of peak excitement over, and partial disillusionment with, the metaverse – that persistently ill-defined buzzword that means so many different things to different people. A BCG/BHI team and I have spent a fair amount of time trying to make sense of what the metaverse could become and what it means to companies and society alike. What we’ve found (as we explain in this WEF blog) is that there is no single monolithic metaverse, but rather multiple metaverses, and that some key players are pushing the version that suits their interests and enhances their existing monetization model.

As I explained in an interview for Think at London Business School, this competition for partly competing and partly overlapping metaverses is critical – especially if it is allowed to create lock-ins for the players involved. Aspiring orchestrators such as Meta, wounded by the loss of advertising revenue because of Apple and an understandable product fatigue, have already revealed their intentions of keeping 50% of metaverse partners’ top-line revenues. Meta has made an opportunistic (market-sharing) agreement with Microsoft, as their VR technology lags and is a bottleneck to their downstream use ambition, and all major players are working behind the scenes to shape the future of the metaverse. Perhaps the metaverse should be thought of as an adjective than a noun, with different platforms and their ecosystems being more or less metavers-y, meaning digitally immersive, supported by AR and VR.

Predictably, Meta wants the metaverse to be Facebook on steroids, or at least in VR, while Microsoft wants it to be an enhanced productivity tool tied to MSFT offerings. They also have different visions of control and engagement with complementors. Some, like Meta, want to rely on platform ownership and engage users to populate the experience, betting on the device to enable them to control the ecosystem. Others, like Microsoft or game developers Magic Leap, want complete control over device, software, and much of the content.

Others, like Roblox and Decentraland, want to encourage high-end devices and specs with a fair amount of flexibility on user engagement, whereas others like Axie and Sorate want to be compatible with anything and everything and just ensure their interactive/VR/AR experience is available. And, unsurprisingly, Apple wants a closed, tightly controlled environment where it can offer the minimum interoperability that regulators require – invoking, as it often does, privacy and security as a convenient pretext for its own aims.

The metaverse shows why regulation may be so important, and why regulators should weigh their options carefully, rather than shrugging and saying “This is too new to meddle with.” While it may be marginal just now, tech moves fast, and the sooner the virtual experience becomes engaging, the quicker the inflection point for rapid adoption will arrive. And when it does, companies must decide what to do. Just as Nike would not be absolved for child labour at one of its suppliers, so we believe an FMCG must thoroughly check out all the issues that each of the many future metaverses might entail, including addiction.

As we step into the metaverse, it’s time for a bolder view of Digital Social Responsibility at the level of the firm – meaning a clear understanding of the choices a firm makes in terms of Metaverse engagement. Recent regulation in China to reduce addiction in gamified environments gives us an early sense of the new responsibilities that have to be shared by commerce and the state. The physical world is brittle enough as it is, yet new technologies not only exacerbate existing pathologies; they also introduce new types of dependencies we have to address. 2023 might be a time to revisit corporate responsibility in this regard.

Given the uncertainties, obligations, and risks of the metaverse, one might justifiably ask whether it is worth bothering with at all. Who does it really help? And how can we ensure success and avoid high-profile failures – like the recent EU “metaverse party” costing several hundred thousand euros that drew only a handful of viewers? With the metaverse being in an early stage, it’s useful to look at its digital precursor, gamification, for patterns that would potentially translate into the metaverse. In a recent White Paper my co-authors and I consider what gamification is – and, crucially, when it works and when it doesn’t. Using Qualitive Comparative Analysis, we find that games can help increase engagement and lock users in, draw new audiences, change a brand’s perception and help identify new opportunities, but that there’s a mixed pathway to success as many companies overcomplicate or design games poorly – and there’s the downside of addiction to consider, too.

The world of Generative AI

The end of 2022 saw a frenzy of excitement over AI, largely because of ChatGPT (Generative Pre-trained Transformer), a remarkable chatbox, and its image-producing cousin DALL-E2, which have showcased the power of generative AI. For all the stunning ability of ChatGPT to emulate conversational language, though, its content remains fairly rooted in the data that is already out there – which is fiendishly hard to evaluate and assess, and fraught with misinformation and misconceptions. So, while GPT can sound smart and competent, it remains rather like the executive who rises through the ranks on a strategy of “fake it till you make it.” While chatboxes of this sort will certainly ease customer engagement, we are no further forward in terms of making decisions and automating processes – and further testing and development is unlikely to overcome these inherent limitations.

That said, AI’s ability to recombine sources into a digestible format can still disrupt professions and business models alike. Interestingly, it is more likely to challenge “baseline creative” sectors such as advertising and illustration, defying the naïve and misplaced intuition that “the only advantage humans have over AI is creativity.” In areas like drug discovery, recombination and creativity have been mechanized for some time now – but judgment and source weighting remain out of AI’s reach. For the moment, therefore, AI will have a similar impact to that of digitization on professions that processed information such as actuaries and financial intermediaries.

Now, to understand which professions, activities, or sectors will be disrupted by generative AI, we will need to see how this new technology, resource- and capital-hungry and therefore concentrated, will be monetized. Google funded its very expensive technology, and its diversification, by selling ads after it captured people’s attention. For now, ChatGPT is free, like any fancy demo – but OpenAI isn’t that open anymore, and now seeks profits, “limited” to a 100x return. The key question is how it will seek to monetize its position, and whether regulators have any views that will shape its business model.

Microsoft’s recent $10B investment in OpenAI isn’t just a strategic investment – it is the prequel of them bundling AI in their core offerings. Google is doubtless working on its response, in terms of technology and possibly monetization strategy. So, rather than concerning technology, this becomes a question about business models and subsequent industry evolutions. The implications may be far-reaching– for major corporate players and boutique specialists alike (including Switzerland’s D-ONE, where I gave a related keynote this fall).

Busting the myth of the infallible tech leader?

In 2022, both Meta and Tesla lost upwards of 70% of their market cap. It was about time. Both companies are run as personal fiefdoms, and with a heavy hand. What is remarkable, in Zuckerberg’s case, is the muted pushback against the byzantine ownership structure that allows him to control the firm with a minority position, despite the dwindling value predicated on the success of the metaverse pivot – which is hardly justified by any analysis or convincing explanation.

What is remarkable in Tesla’s case is the absurd provision of liquidity by major banks such as JPMC. Driven by FOMO and potential new business, they threw loans at Musk with no or scant due diligence on highly doubtful collateral whose value is now collapsing. This, of course, is the dark side of the unstinting and largely uncritical support given to established tech leaders, whose authority or charisma stood in for proper strategic justification.

In Tesla’s case, the smoke and mirrors stopped fooling most onlookers many moons ago. A recent study found a spike in fake Twitter accounts spreading positive sentiment about Tesla whenever bad news was about to be released – making Twitter’s purchase an understandable vertical integration for Musk into the world of propaganda he undoubtedly musters. Tesla made no money selling cars until a few quarters ago; the majority of its net income was regulatory credits – i.e., money that rival carmakers had to stump up to comply with government regulation. While there is a real value in the network of charging stations, there is no other network externality to speak of, and Tesla had a blemished production record for a while – yet the firm enjoyed far cheaper capital, and far more patient investors, than its rivals could dream of. Spin led to funding led to real advantage.

Looking at the crypto mess, the companies that fell had governance structures and management processes that were abysmal, as the liquidators of FTX found out. The board of FTX consisted of just three members: the CEO, a senior executive and a lawyer from Antigua and Barbuda who resigned well before the collapse. Despite that, Temasek, the respected Singaporean sovereign fund, invested $275M after eight months’ due diligence. Were those doing DD so seduced by the image of the invincible tech entrepreneur?

My experience in teaching turnarounds is that there is a strong correlation between leaders adored by the press and underlying governance issues that can lead the company into deep waters. 2022 has reminded us that these basics still hold. You need proper governance, not two buddies. Established tech entrepreneurs might well do better than the rest of us – but it’s thanks to their address books as much as their brains.

Connections matter as much in tech as they do anywhere, and the pattern of the same old (or young) people using their networks and capital to fund connected ventures is a testament to network closure and the inherent features of capitalism and selection. Incumbent investors get first dibs at great deals, gaining eye-watering private returns, and “Mark III” dynamics also sustain tech incumbents in the long run. What a wonderful bonus it would be if 2023 saw us finally hunting down this grey rhino, which has been lumbering across the savannah, hiding in plain sight, for far too long.

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Making sense of whats happening in tech


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