Hyperscale Businesses in the Digital Age

Your essential briefing on what you need to know about Hyperscale Businesses in the Digital Age. Protect your business. The recent news item about Amazon being in talks to offer event ticketing (here) brings into focus the existential threat from a class of businesses that have emerged over the past five years, which that can be described as “Hyperscale” organisations.

Hyperscale is a set of concepts and practices that have been developed by a group of players to create the business architecture, mind set, and processes that are required to scale to hundreds of millions – or even billions – of users.

There is a set of unicorns out there that have built infrastructures that are massive in their scale.

Some twenty companies form the elite league of the Internet with at least 100 million users each.

In this group, twelve have between 300 million and 2 billion user. These include Twitter at 320 million users, China’s Weibo with 340 million users, and Instagram at 600 million users; above them in the social community space are China’s QQ and We Chat from Shenzhen-based TenCent and WhatsApp.  Heading the league table are Facebook, and Google – along with the ubiquitous Microsoft. Included in this rarefied atmosphere are the mega “online e-commerce platforms” Amazon and Alibaba, which between them boast three quarters of a billion users.

So What is Different?

These Hyperscale businesses exhibit certain characteristics, which (in addition to sheer scale) set them apart from other large enterprises, and create a terrifying force for the unwary.  These characteristics are: 

Hypergrowth Size and exponential growth does not worry them. They will have gone through periods of intense hypergrowth. For example, WeChat amassed 300 million customers in just two years, and online news portal BuzzFeed took a few short years years to reach 130 million unique readers per month (compare this to the New York Times, that has been around for a century and a half, and has only amassed 54 million unique readers). 

Operating Leverage Their scale gives them the ability to achieve tremendous operating leverage through process automation and algorithm driven decisions. They can scale at almost zero cost. They deal in digital information goods (content and digital services) that have almost zero cost to store and deliver and replicate.  

Application Platform is Critical The “Application Platform” is at the core of everything – here hyperscale businesses place themselves at the heart of a rich ecology of players and are embedded in the digital lives of their users – in turn, this generates value for advertisers and app developers. Amazon, Alibaba, Taobao, eBay, WeChat, and others are the “go to source” for millions of customers on a daily basis.

Big Data Hyper scale businesses generate phenomenal amounts of data; the click streams of Amazon, Visa, MasterCard, Facebook, and Google creates intelligence about our behaviours that can be monetised and used to drive new business channels, create new products and services, and personalise offerings based on your historical and current click stream.

What Else do we Know? 

Computing power. Underpinning of the hyperscale business is the immense computing power at their disposal. Their data centers are global autonomous entities, demonstrating infrastructures with a high level of software automation. They have redefined data centers to create a singular global resource. (Just for perspective Amazon operate 2 million servers across 28 locations).

Each business’s global resources operate as a single automated governed system processing millions or billions of data points each day. Driven by artificial intelligence and machine learning, this has the effect of making the performance, reach and behavior of customer applications effectively scalable on demand – whatever the demand.  

Web based Hyperscale businesses are web based, serving a massive population of global users on mobile devices, desktops, and wearables, and accessing devices and sensors that make up each individual’s personal and unique digital ecosystem. The core business is based on accessing processing and disseminating information over the Internet.  

Algorithms are just part of the resources. The sheer scale of the businesses are beyond the capability of an army of employees to sense and respond to customer behavior and customer requirements; today’s Hyperscale enterprises are driven by business processes directed by algorithms, machine learning, natural language processing, and artificial intelligence.   These processes upsell, cross sell, and make informed and intelligent recommendations to the customer and user, and in doing so make arbitrary decisions on customer interaction, without human intervention.

Invest well ahead  Hyperscale businesses invest well ahead of the curve – employing over qualified people who can handle exponential growth and acquire resources that are several magnitudes ahead of the current or near term demand. 

The Threat is the “Real and Present Danger”

With scale and resources at their disposal, and almost zero marginal cost of expansion, these Hyperscale businesses move into new sectors, new businesses, new markets, and scale globally – at high speed; with their immense user base taking up new product and service offerings across the world.  

For example, Facebook moved into messaging and, along with WhatsApp and WeChat, disrupted the SMS market.  

(AliPay) Alibaba and (WeChatPay) (TenCent) and QQ took 90 per cent of the China’s $5.5trillion mobile payments market in four years.  

In April, 2017, Google announced it would enter the $200bn On Line recruitment business – with already 68 per cent of the search market and a whopping 1.2bn people using Google, the potential for taking business from Monster.com and LinkedIn and the like is enormous – because Google has the critical mass and the knowledge of search.  

And now – Amazon may move into the multi billion-dollar event ticketing market. 

The Marketing Holy Grail

Hyperscale businesses can personalize for billions The Immense Data Troves that are held by the hyperscale businesses allow the marketing holy grail of a personalized products on demand to be achieved for billions of people. Hyperscale businesses have the depth and breadth of intelligence, and the scale and speed, to tailor your service to your needs at the click of a mouse.

Customer acquisition is almost instantaneous  As I mentioned earlier, the Hyperscale business sits in the heart of the users digital world and thus any new product is taken directly to the hand of the prospect, delivered by an existing trusted source – the digital app in constant use. Customer acquisition is rapid and on a global scale.  

Key Takeaways

There are some key lessons (and threats) that businesses cannot ignore if they wish to survive the global onslaught from hyperscale businesses – moving from sector to sector, rolling over unsuspecting incumbents, and disrupting the status quo – almost overnight:

• Hyperscale competitors disrupt at speeds that surprise the unprepared
• Hyperscale businesses challenge conventional intuition about scale and complexity
• Hyperscale company leaders concentrate on different things than the leaders of growth companies. The former value scalability, technology, and M+A as high priorities
• The metrics of hyperscale businesses soar above the levels of traditional businesses

Can Hypergrowth be Cultivated?

This is the one billion dollar question.

Yes, I believe it can and the evidence is a business called Under Armour that transformed itself from an apparel retailer to a global wellness brand with over 100 million customers all of whom receive tailored advice and product recommendations from Under Armour. 

There is hope for the myriad of businesses that are of a lesser scale than the Hypergrowth giants, but NO ONE can afford to be complacent.