Octopus Model

Previously we discussed about moats. The technology companies doesn’t have long lasting competitive advantage as the their shell life is very low. For instance, Google has to venture into Google Chrome, Google Home, Android and many more products just to ensure people still use Google search. Advertising is the main revenue model for the company.

Let’s discuss the Octopus model now. Taking up best example i.e. Amazon. The tech giant doesn’t focus just on a single product. Apart from being an e-commerce giant it has other businesses like Amazon Prime, Amazon Pay, AWS, kindle and many more. It doesn’t make that much of huge margin in most of its businesses. Most of the profits comes from AWS and the advertising on the e-commerce portal. Further, it has to pay the third parties after 60 days. So, it can utilize the cash for the 2 months, without having to pay any interest.

Moreover, Amazon also keep on decreasing its profit of margin by 20-30%. Since the profit is minimal or negligible, the new companies won’t be able to compete. It is not selling the products just to one customer. It is creating a giant network of buyers and sellers. Thereafter, it can add up new products one by one and start lighting up little profits. This is the octopus model, where all these businesses are the legs of the octopus.

Let’s see an emerging example which is trying to replicate the same octopus model in Indian soil. Yeah you guessed right, we are talking about Jio. It has already created a network of around 400 million subscribers. It has to pay huge price though. Giving away free voice and data for 6 months. After the success in the telecommunication, it has ventured into e-commerce, JioMart, where it is giving huge discounts. Recently it launched a clone of Zoom, JioMeet. It also has it’s own studio, Jio Studio. It has many more products and many more technology products are in the pipeline too.

That’s how big companies keep on getting bigger.