The year isn’t over, not for more than two months. But it sure feels like 2020 should end soon, seeing as how one pandemic-stressed, politics-inflamed day bleeds into the next.
Nevertheless, it might be healthy to start putting 2020 behind us. It’s been a disruptive year in high tech, as in every other industry, but it’s also been a highly public proving ground for cloud, streaming, artificial intelligence, and other pillars of 21st century civilization.
Tech has been the economy’s mainstay during the pandemic
As we squint past the upcoming US presidential election into the new year, the following trends will shape the technology landscape for the rest of this decade, regardless of who occupies the White House on January 20.
For starters, the pandemic will drag on longer than people would like to believe. Distancing, quarantining, and lockdowns will still hammer the global economy for at least another 6 to 12 months. However, the tech sector has already figured out how to keep operating in spite of these obstacles. Just as important, its customers now rely intimately on cloud, streaming, remote collaboration, robotics, smart sensors, and other digital technologies in order to stay alive.
In 2021, enterprise technology professionals will adjust their strategies with one eye on COVID-19 trends and the other on their digital transformation initiatives. Predictive containment management will become a central element of every facilities administrator’s high-tech toolkit.
Socially distanced living will persist long past the present pandemic’s end. People will continue to socially distance in most public interactions for at least the next three to five years. Through fits and starts, the global culture is getting used to personal protective equipment, ubiquitous biosensors, contactless interactions, remote collaboration, sanitization-intensive maintenance, and other changes in how we live and work. Many of these new living styles depend on AI, cloud services, mobile devices, robotics, and other technological platforms.
The tech vendors who stand to gain the most from this trend are those—such as Amazon, Google, and Microsoft—that provide full, cloud-to-edge ecosystems that enable seamless “new normal” lifestyles.
Furthermore, effective COVID-19 vaccines will come to market only after long delays in R&D and in clinical trials. Hopes for a quick resolution to the pandemic crisis will wither as the grinding process of developing and testing COVID-19 vaccines continues. If we consider the history of vaccines for recent pandemics such as Ebola, it may take two to three years before an effective COVID-19 vaccine arrives. However, the tech sector will benefit from the fact that vaccine development will critically depend on AI, high-performance computing, quantum technology, and other advanced tools.
As the human race sifts through false hopes and counterproductive approaches for treatment and cure, tech companies’ solutions will literally become a lifeline for distinguishing what works from what doesn’t.
FAANGs will cement their dominance in the global economy
Against the backdrop of these trends, I wouldn’t bet against the FAANG (Facebook, Amazon, Apple, Netflix, Google) vendors (and also Microsoft) further cementing their tech-industry dominance throughout the 2020s.
These six vendors—often grouped together as “Big Tech”—are the foremost business success stories in the present crisis. Tech stocks have been at the heart of this year’s counterintuitive stock market recovery.
The mini crash of March is receding in the rearview mirror as the FAANG vendors have proven how essential cloud, streaming, remote collaboration, edge computing, and other digital technologies are to economic resilience. During the past several months, the tech giants have outperformed the rest of the stock market, with the Nasdaq-100 index up 24 percent this year.
Even as the pandemic wanes, investors will flock to the Big Tech vendors as the safest place to put their money. Tech companies have proven to be low-risk investments, considering that many of today’s leading tech companies are highly profitable and can easily cover their respective debt holdings from available cash.
Political and regulatory pressure will build on Big Tech
One big wild card in Big Tech’s future may be legal and regulatory pressures to divest themselves of assets that give them what some call an unfair, monopolistic advantage in their core markets.
Recently, the US House of Representatives antitrust subcommittee released its investigative findings that Google, Apple, Facebook, and Amazon “have become the kinds of monopolies we last saw in the era of oil barons and railroad tycoons.” The subcommittee specifically called out Amazon’s dominance in e-commerce, Google’s in search and advertising, Facebook’s in social networking, and Apple’s in both mobile content and apps. The companies were cited for such anticompetitive practices as acquiring potential competitors and using their platforms to limit competition, control access, and favor their own products.
To address these concerns, the subcommittee recommended updating antitrust laws to reflect today’s digital economy. It also called for additional FTC oversight over Big Tech mergers and acquisitions. Most controversially, the legislators advocated breaking up the Big Tech companies or requiring them to divest themselves of key assets to encourage competition.
At first glance, there doesn’t appear to be any natural way to partion these vendors to achieve the stated objective. Requiring Amazon to spin off its third-party seller marketplace wouldn’t lessen the dominance of its core “first-party sales” online retailing site. Splitting off Google’s search assets from its mobile OS, digital advertising, cloud computing, and office productivity assets wouldn’t dent its momentum in any of those other segments. Mandating that Facebook sell off its Instagram, WhatsApp, and Messenger products wouldn’t dilute its hold on its core social networking subscribers. And opening up Apple’s devices to other app stores, music channels, and streaming media channels probably wouldn’t diminish the first-to-market advantages of Apple-founded offerings on those devices.
Dominant tech vendors will not back down
If legislators and regulators attempt to force Big Tech’s hand in this regard, they’re likely to set the stage for a long, drawn-out, lawyerly trench war.
Even if any of these megalithic digital companies were forced to partition, M&A activity in the impacted segments might bring the pieces back together. This is not a farfetched scenario if we consider how the “Baby Bells” organically re-coalesced in the years after the 1984 AT&T divestiture or the “Baby Standards” reasserted their collective muscle in the decades after the 1911 Standard Oil antitrust breakup.
Another likely outcome is that one or more of the post-breakup FAANG companies might rapidly rebuild itself to “800-pound gorilla” scale through the growth-hacking savvy that pervades this industry. All of the FAANG vendors began as startups, as did many of the assets they gained from strategic acquisitions. Nothing would be more natural than for the newly independent, split-off divisions to come roaring back with fresh capital, vision, and momentum.
During this decade, Big Tech vendors will face greater regulatory scrutiny if they attempt to buy out direct competitors or substantial vendors in adjacent niches. However, any regulatory effort to hamstring the FAANGs in their core markets is likely to set off a new round of acquisitions in nontraditional (for them) industries. We expect that other Big Tech companies will follow Amazon’s lead in acquiring strong brands in brick-and-mortar sectors that have been severely impacted by the COVID-19 recession and from the tech-instigated disruptions of the past decade. In this way, defunct brands in retail, hospitality, airlines, and other sectors may resurface in new roles within predominantly virtual business models.
This almost goes without saying. After all, the FAANGs are sitting on huge piles of cash and are avidly scouting for new investment opportunities, in the classic fashion of any self-respecting capitalist. As of this past May, Apple held cash, cash equivalents, and marketable securities to the tune of $192.8 billion, while Microsoft was sitting on $137.6 billion, Google parent Alphabet had $117.2 billion, Facebook had amassed $60.3 billion, and Amazon held $49.3 billion. Also, the sharp rise in all of their stock prices during the COVID-19 crisis gives them even more purchasing power for snatching up valuable competitive assets.
During the coming year, it wouldn’t be surprising if one or more of the Big Tech vendors decide to voluntarily self-partition, without a specific legal or regulatory mandate to do so. We can see foreshadowings of this in Google’s restructuring of its business units into Alphabet subsidiaries four years ago. HP split into enterprise and consumer businesses in 2014 and IBM separated technical services from its core product portfolio earlier this year.
If Apple, Amazon, Facebook, and other Big Tech vendors can find a shareholder rationale for partitioning their respective businesses in the coming year, they will probably waste no time putting it into effect. If doing so helps keep regulators from breathing down their necks, then, all the better.