WINNERS IN A PANDEMIC ECONOMY
COVID-19 has wrought economic disruption on a monumental scale. Around the world, businesses of all shapes and sizes have fought a life-and-death battle for survival. Business owners have grappled with forced closures, plummeting revenues and surging losses. Despite drastic measures – including slashing jobs – many businesses have been unable to stay afloat.
The decision by policymakers to induce massive economic suffering to save lives was a brutal trade off – but not for the technology industry. While other industries were decimated by store, restaurant and office closures, the technology sector powered ahead. Government stay-at-home orders were a godsend for technology companies – demand for their just-a-click-away services skyrocketed.
Specifically, the COVID crisis turbo-charged the profits and share prices of the technology industry’s Titans – Alphabet (Google’s parent company), Amazon, Apple, Facebook and Microsoft. The quintet benefited enormously from a greater reliance on their services during the pandemic as the world moved almost entirely online for work, school and entertainment.
Each of these leading digital powers was able to capitalise on being viewed as an essential service for a public in lockdown with their shares enjoying a jaw-dropping bull run. As noted in a report in The Wall Street Journal, their combined revenue during 2020 surged by a fifth to a mammoth $1.1 trillion while their aggregate market capitalisation soared by half to a staggering $8 trillion.
Thanks to the pandemic, the technology conglomerates now make up five of the six largest companies in the world. During 2020, their stocks soared to dizzying heights and all are now valued at over $1 trillion. According to an analysis conducted in March this year by MacKeeper, these companies are worth more than most countries. MacKeeper noted that:
- Apple’s gargantuan $2.2 trillion valuation makes it richer than 96 per cent of the world. Only seven countries have annual GDP figures that outrank Apple’s market capitalisation.
- Microsoft’s colossal $1.8 trillion market cap puts its value on par with the GDP of Canada and makes it richer than many developed economies including Australia. Only nine countries are worth more than the developer of Windows.
- Amazon’s $1.6 trillion valuation would make it the 14th richest “country”. Its revenue per employee is $351,531 annually, which exceeds the highest GDP per capita in the world.
- Alphabet, Google’s parent company, is valued at $1.4 trillion, putting it ahead of all but 12 nations.
- Facebook, while falling short of the trillion-dollar mark, is valued at a respectable $763 billion. (NB: Facebook’s cap passed $1 trillion on 28 June 2021.)
The economic effects of COVID have catapulted the tech Titans to heights that few would have imagined possible prior to the pandemic. They now account for nearly a quarter of the total value of companies in the S&P 500 index – the barometer of corporate America – and that is almost double the percentage of just five years ago. Never before has this level of market influence been seen from one sector.
These behemoths have phenomenal corporate power and have been dubbed the “Frightening Five”, which is why some believe that their wings need to be clipped. Together, they control much of the critical digital infrastructure which underpins global commerce. Over recent years, their digital services have played a greater role in our daily lives.
The imposition of social distancing and travel restrictions during the pandemic dramatically increased our dependence on digital platforms to service our basic needs, including staying connected with family, friends and colleagues. This reliance was tangibly demonstrated in the exponential rise in spending on computers, online retailing, cloud-computing services and digital advertising.
The pandemic has made a clutch of tech firms an even more integral part of work and personal life. Indeed, the coronavirus has created huge tailwinds for these juggernauts by driving behavioural shifts that will long outlive the health crisis. “Digital adoption curves aren’t slowing down – they’re accelerating”, said Microsoft Chief Executive, Satya Nadella.
Big tech is on a roll and their deep pockets will enable them to withstand almost any challenge to their market dominance. Investors have been astonished at their earnings growth and resilience in marching unscathed through the health chaos. In the words of one analyst, “the digital revolution is here to stay, and these businesses are embedded in our lives”.
One journalist who tried to live without the tech heavyweights claimed that it was impossible. Another journalist found that she could reduce but not eliminate the Frightening Five from her life. Despite her goal of wanting to “excise these companies from my life as completely as possible,” she discovered that “these tech giants dominate the Internet in so many invisible ways,” it’s not possible to avoid them.
According to an article in The New York Times, the Big Five’s platforms “are inescapable; you may opt out of one or two of them, but together, they form a gilded mesh blanketing the entire economy”. Many of these digital platforms generate what economists call “network effects” – they keep getting more indispensable as more people use them.
Millions of people find it hard to imagine going through a single day without using an Apple iPhone, conducting a Google search, reading a Facebook News Feed, receiving a package from Amazon or launching Microsoft Office. Nonetheless, these same people find it unsettling that a handful of unelected tech executives wield so much power.
Governments around the world also worry about the misuse of monopoly powers and the gobbling up of competitors. Government probes have been conducted into their business practices and have uncovered privacy concerns and data security breaches. Governments from Australia to the US are starting to crack down on big tech companies to rein in their power.
Over recent times, US tech companies have faced increased scrutiny in Washington over their size and power. Republican and Democratic lawmakers have banded together to introduce a package of bills which will change antitrust laws which regulate the conduct of business corporations. The legislation should level the playing field by ensuring that tech companies are held to the same rules as everyone else. As noted in one report:
The new laws would make it easier for the government to break up dominant companies. It could also prevent these companies from snuffing out competition through pre-emptive acquisitions. And it could curtail the tech giants from entering different businesses where they’d be able to use their market power to crush smaller competitors.
In any market, regulators like to see competition as this gives consumers choice. Having one dominant player lessens competition which typically leads to higher prices. But in the case of Google and Facebook, their services are free thereby making concerns over pricing irrelevant. The companies themselves say they are successful because of the quality of their offerings, so why punish success? To quote Bloomberg Technology:
Consumers appear to agree it’s hard to beat Google’s suite of free products or Amazon’s convenience. Their dominance may not be about predatory practices so much as the nature of competition in the digital marketplace, where tech platforms benefit from network effects: As more people use them, the more useful – and dominant – the platforms become.
So, the focus must be on whether there are other harmful political, economic or social effects. Some believe that the tech giants have become more like governments than companies given the staggering amount of money at their disposal and the enormous influence they have over democracy in society. Case in point, Facebook has become a global political force as the largest and most influential entity in the news business.
The digital economy knows no national borders and this is a threat to the jurisdiction of governments around the world. Given this, we will likely see increasing friction between the Big Five companies that rule the tech industry and the governments that rule the lands these companies are invading. The nation-state is fighting not to lose its grip.
Love them or hate them, there’s no escaping the tech superstars. They have become part of the fabric of our lives and will continue to cast a long shadow over the political, economic and social landscapes. They have created an Internet oligopoly which has changed the face of modern capitalism and made them indomitable.
The Big Five have only one question: What pandemic?
Paul J. Thomas
Chief Executive Officer