Author Archives: Udita Gulati

Disney+: Is a Netflix streaming war on the way?

The pandemic’s impact on Disney can be seen through the closing of Disneyland parks, its cruise lines, productions, and delays in its upcoming movies. It has also resulted in thousands of redundancies at Disneyland Resort, Walt Disney World, and its retail stores. For the 2020 fiscal year, Disney reported a net loss of $2.8 billion. Its profits decreased by 99% at $29 million this quarter, from $2.1 billion last year. Its costs will also increase by $1 billion this coming year due to the increased spendings on safety precautionary measures to prevent the spread of the virus as parks are slowly beginning to open again in limited capacity, such as the company’s resort in Florida. Overall, its operating income decreased by 67% to $1.3 billion, and could have been $2.6 billion higher had the effects of the pandemic not hit the company. 

Nevertheless, Disney has focused its efforts on its streaming business, Disney+, which uses a subscription model of $7 per month by itself, or $13 a month in conjunction with Hulu and ESPN+ as a package. Disney+ has acquired roughly 95 million subscribers, an increase of 9 million from just December. In fact, the streaming service in conglomeration with Hulu, Hotstar, and ESPN+, has gathered 146 million subscriptions. The company’s fast growth as individuals increasingly indulged in its services during lockdown has solidified its position as a strong Netflix competitor. This positive news of Disney’s progression sent its stock up by 3% in after-hours trading as investors “focused on the promise of streaming instead of the billions of dollars lost to the pandemic.”

The company is now being treated like a tech company as investment in its streaming business continues to rise. However, investors and analysts have raised concerns, wherein they question how the company plans to grow beyond its current “diehard fans.” As a response, Disney plans to invest in and push out more content. Streaming is a very costly business and the company requires high funding to finance new series and movies that are necessary to not only maintain its current subscriber base, but also to lure new subscribers. 

Disney’s future looks bright as it harnesses and further develops its Disney+ platform by doubling investment for its annual content to $15 billion by 2024, at which point its streaming business would begin turning over profit. 

The company forecasts 300-350 million total subscribers worldwide in its streaming services by the end of 2024. On one hand, Bob Iger, executive chairman, said Disney will focus on releasing quality content over quantity. It plans to release around 100 new titles annually across its brands, with attention to its Disney+ library. Disney has revealed its plans to release 10 Marvel series, 10 Star Wars series, and 15 Disney and Pixar series. On the other hand, as Disney competes with Netflix, there is a pressure to increase its volume of content. Netflix was able to release more than 370 shows and movies last year, which roughly equalled a new show everyday! Kareem Daniel, who is in charge of Disney’s creative content, now says Disney’s goal is to release new content to Disney Plus every week. It will be interesting to watch and analyse the strategy Disney uses to continue flourishing its streaming services this year.

The pandemic’s effect on food delivery services

The impact of the pandemic has affected companies in various industries differently. However, food delivery companies, have been on the receiving end of better performance unlike their hospitality peers. In fact, the pandemic completely turned around the situation for certain companies. 

Billions of dollars worth of losses for the food delivery sector were forecasted at the beginning of the year. One of the most notable food delivery businesses, Grubhub, was actually contemplating “putting itself up for sale after losing its foothold on the market.” 

The pandemic has proved to entirely reverse situations like these as more and more restaurants shut down during lockdown periods. As a result, people who were forced to stay indoors turned to food delivery. 

How did Uber respond?

As Uber’s core ride business drastically declined, it heavily focused on its delivery services. Sales for meal delivery increased by 135% in the US alone. With positive trends like this, Uber has planned a $2.65 billion acquisition of Postmates to increase its market share and reduce competition. This will allow Uber to control 37% of the food delivery sector in the United States, second behind DoorDash. The company also tried to merge with Grubhub but JustEatTakeaway beat the company to it, now allowing JustEat an entrance into the US market. Uber has also been focusing on diversifying its service portfolio by launching a grocery delivery service in the US. The idea is to create services that consumers form habits off of, to ultimately continue its boom growth trajectory post-pandemic.

How did DoorDash respond?

DoorDash has been taking full advantage of the soaring appetite of customers for its services and has secured an opportunity for an initial public offering. It was able to secure $2.5 billion in capital to expand from its original food delivery service to offer convenience and grocery store products as well. DoorDash also expanded its product portfolio to create Storefront to support restaurants in listing their stores on DoorDash without the charge of commission on items sold. It also set up Self-Delivery which allows restaurants to be listed on the app but use their own delivery services. DoorDash is aware of the benefits it is receiving from current circumstances and is not ignoring the possibility of its soaring demand potentially decreasing once the pandemic starts to settle. “Warnings in its IPO paperwork [that]… the circumstances that have accelerated the growth of our business stemming from the effects of the Covid-19 pandemic may not continue in the future.” Nevertheless, consumer dependence on such services continues to grow the longer the pandemic prevails, which is why DoorDash is now valued at $38 billion.

The holiday season

Food delivery services are now increasingly focusing on speed of delivery as a key source of competitive advantage – especially as orders increased during the holiday season. For example, Postmates is launching a new business model for retail that allows customers to get “instant delivery from clothing, home, beauty and wellness retailers, and allowing the delivery company to broaden its reach.” It seems as though companies that initially started off in the food delivery sector are now beginning to dip their feet in offering services similar to that of Amazon. Mike Buckley, the senior vice president of Postmates, notes that there has been a shift in consumer habits as they increasingly transition to online shopping. Companies are allowing faster provision of these products as they work to increase the speed of their deliveries.

This shows the new opportunities the pandemic has created for the food delivery industry. The use of digital marketplaces is now being broadened to provide a bridge for customers to virtually shop for both household essentials and recreational products from retailers.

Airbnb Facing Strict Regulations From The EU

The go-to holiday rental company, Airbnb, is under scrutiny as the EU is expected to release a draft of a new Digital Markets Act this December.

What is the Digital Markets Act?

Since 2000, this is the first time an act like this is being revised. It is “expected to overhaul the management of content on platforms like Google and Facebook with its Digital Services Act.” Representatives, from Amsterdam, Barcelona, Florence, had a meeting with the EU Competition Commissioner, Margrethe Vestager, to discuss the implications of the current legal framework being outdated and inhibiting officials from addressing concerns created by online platforms. As Big Tech companies grow increasingly powerful in the marketplace, the aim of this act is to enforce stronger regulations that promote fair competition in the EU market. 

How will this affect Airbnb?

One of the current issues at hand regarding the Digital Markets Act is deciding whether or not Airbnb will be among the companies that will have to comply with the new rules. Officials are still in the process of deciding whether the rules should apply only to tech giants such as Google and Amazon, or to also include 20 other companies.

22 European cities have come together to persuade the EU to impose stricter regulations on Airbnb (and other short-term holiday rental platforms) because they are squeezing out domestic competition. The Dutch government indicated that the short-term holiday rental industry creates negative externalities for the “house market, liveability, social cohesion, safety, and the level playing field for other providers of such accommodation.”

Without regulations directly from the EU, Airbnb is permitted to continue its operations with great freedom by affirming “it is simply a platform to put people in touch with renters.” Airbnb definitely has a chance of being targeted because of “its large share of short-term rentals market.”  If the EU does decide to include Airbnb, the company will be expected to share their research and data with smaller rivals and local authorities. The Digital Markets Act would impose a ban on pushing out their own products and services stronger than those of third party sellers. There will also be additional rules that prevent unfair competition to allow markets to function better. Officials will have greater power to “intervene in digital markets to address structural problems before they become… baked-in internet monopolies.”

Industry impact

This will significantly affect the dynamics of competition as tech firms spend a great amount of time and money on capital developing systems that collect and analyse consumer and market data. This gives them a strong competitive edge which is why these companies have declined to reveal their algorithms for years. The regulation will especially impact Airbnb as it is preparing for its multibillion dollar public listing in 2021.

IBM’s New Cloud Computing Restructure Plan

IBM, a 109 year old tech veteran, has revealed its decision to split into two companies in order to properly focus on its hybrid cloud and AI ventures. Cloud computing has recently become a buzzword as the industry has seen exponential growth in recent years. Gartner forecasts that the global cloud computing market will grow by 6% in 2020 to a total of $257.9 billion.

What is cloud computing?

Cloud computing essentially offers services such as storage, processing power, servers, analytics, intelligence, databases, and more, over the internet. It takes away the aspect of needing to be in the vicinity of computer hardware to access certain services, and instead allows for accelerated innovation and readily available resources. 

In this way, firms can rent cloud infrastructure and pay for exactly what they need instead of financing the costs of creating and constantly updating their own IT infrastructure. These services need consistent maintenance due to how software can go obsolete as technology rapidly improves. Companies that specialise in offering these services are responsible for these updates as it would create unnecessary expenditure for small businesses to hire a skilled workforce to take this function on – in supplement to what they already produce. IT trends indicate a “growing reliance on external sources of infrastructure, application, management and security services.” It is predicted that 50% of global enterprises currently availing of cloud services will have fully integrated this service into their business models by 2021. Suppliers of cloud computing services and their B2B model reap the benefits of large economies of scale by providing their services to multiple firms and customers.

The catalyst to IBM’s restructuring decision

IBM’s strategic acquisition of Red Hat for $34 billion in July 2019 was the most important step in the organisation’s move today to reinvent itself. Red Hat, a provider of open hybrid cloud technologies, along with IBM’s industry expertise and sales leadership work together to offer a “next-generation hybrid multi-cloud platform”.

Hybrid cloud amalgamates public cloud, used to control various databases, and private cloud, used to safeguard confidential data, to provide all the benefits of cloud computing in the most secure manner. IBM identified and seized the market opportunity of businesses increasingly transitioning their operation to the cloud as they aim to reduce costs, innovate with agility, and grow efficiently by using only essential resources. Red Hat’s leading hybrid cloud technology in partnership with IBM will allow this innovation to reach a wider audience. 

IBM and NewCo

Presently, IBM’s Managed Infrastructure Services unit will now be transferred in 2021 to a new public company that is temporarily named NewCo. This will allow IBM to “laser focus on the $1 trillion hybrid cloud opportunity.”  IBM’s Executive Chairman, Ginni Rometty, believes “IBM will accelerate clients’ digital transformation journeys, and NewCo will accelerate clients’ infrastructure modernisation efforts. This focus will result in greater value, increased innovation, and faster execution for our clients.” NewCo will not only encompass IBM’s traditional services, but it will also include “testing, assembly, product engineering and lab services,” to modernise digital transformation. In addition, NewCo will focus on a $500 billion market opportunity to manage client-owned infrastructure. 

IBM will act on the growth of their clients’ needs for the hybrid cloud platform and AI capabilities. Their approach, founded on Red Hat’s OpenShift, “will drive up to 2.5 times more value for clients than a public cloud only solution.” Analysts believe this will allow IBM to invest into growing and more profitable business areas. The distinct companies will undoubtedly allow increased value for their different customers and shareholders. This proves how cloud computing has become a significant buzzword in the technology industry.