The great acceleration
And other signals of change this week: News from the Tech Cold War. Building the new information networks. Pandemic economics. The new age of entertainment
The great acceleration
It’s already one of the big themes of this crisis. Things like e-commerce have grown more in 8 weeks than in the previous 10 years, and this is affecting more and more human activities. Many voices are claiming now that they would want to recover the previous normality, but this doesn’t look like the most probable outcome…
The crisis has already changed us, and many pre-pandemic activities seem exotic now: The WSJ has listed a number of gadgets that have become essential during the crisis, and that are not expected to disappear from our lives after the pandemic. They talk about Peloton’s connected workout equipment, (+66% sales last quarter, 10 weeks delay in current orders), smarter kitchen devices like the Breville coffee machines or the Tovala smart ovens, high quality webcams like Logitech’s (+34% sales in 1Q20), and video games for all the family, like Nintendo’s Animal Crossing (11m copies sold) (Story)
The debate on how to deal with all these changes has already started: you can see an example in this opinion piece by the innovation editor at the FT. It is a simple proposal, but makes a lot of sense. He points to three key questions that we will need to answer in the coming years: (1) Should we monitor our health like we already do with machines?; (2) Who can we trust to store and manage our data? (probably including information about our bodies, see previous point); (3) How do we build the infrastructure to support the internet connectivity that all these services will require? (Story)
A first implication is that technology will win (again), as the enabler of the “new normal”:
Working: Everyone is assuming these days that many people will keep working remotely after the crisis. This is creating a debate on the future of some megacities (like New York), as some people could decide to move outside of the urban center, preferring space and lower health risks to the tight social interactions that have made cities thrive (Story).
Lots of opinions about this, including claims that a massive shift to work from home could negatively affect creativity (Story)
Shopping: This is an obvious theme by now. The statistics are clear, e.g. e-commerce penetration in the US has increased from 16% to 27% (of total retail sales) in the last 2 months, when it grew from 6% to 16% in 2009-19. And tech companies are already moving to profit from this, including (obviously) Amazon, Shopify, and (most recently) Facebook (Story)
Moving: A little less clear than the other two, but potentially significant as societies start to “open up” after the crisis. If people remain reluctant to use public transportation (due to contagion risks) but are forced to go to work anyway, this could trigger massive traffic jams in most cities. To manage this, technology, and data, could be key. Is this the “killer app” that smart cities have been waiting for? (Story)
Also, trade-offs between health protection and data privacy will emerge: We’ve already talked here about the rejection that privacy issues linked to contact tracing apps have provoked in the West. But even in China, where (we’re told that) people accept this things more easily, anger is now spreading after announcements at some cities that a smartphone tool that has been used to track the movement of potential COVID-19 patients could be adopted permanently, as a preventive public health instrument (Story)
Finally, a new infrastructure will have to be built, to sustain the new ways of living and working. We’ve already mentioned here that governments could see here the tool to provided a much needed stimulus for the economy. And there are conversations about this under way in most Western countries:
In the US, federal policy makers are pushing to spend billions to close gaps in connectivity (a figure of $16bn has actually been mentioned, to subsidize broadband networks in rural areas). The only thing delaying the project seems to be the lack of data about where the gaps are (Story)
In Europe, private investors, like KKR, are moving to fund some of the projects that look to build the digital infrastructures of the future. The investment firm has said they will put $1bn in a new data center venture focused on the region (Story)
News from the “Tech Cold War”
The tension between China and the US continues: Yes, it is a trade war, but very focused on technology, which (as discussed before) is becoming the key strategic asset for the future. The recent American moves against Huawei have triggered a cascade of consequences, with Asia’s smartphone vendors seeking to reduce reliance on US suppliers, and Chinese electronics companies trying to help the country insulate from their current dependency on the West (Story)
Huawei has already started to switch to Chinese semiconductor vendors: At least for smartphones, a Japanese analysis reveals that, in Huawei’s current flagship phone, up to 42% of the total value of components corresponds to parts made in China (vs. 25% before restrictions), while only 1% is linked to US-made parts (vs. 11% before) (Story)
But the company’s problems are extending: The US keeps pushing its allies to adopt similar restrictions to the ones they’ve set up. And the UK is expected to be one of the first countries following this path, as shown by rumors this week about the government drawing up plans to force a full phase out of Huawei from British 5G networks (Story)
Behind all this, the potential for a deep re-organization of the world’s supply chains: Some opinions compare all this with what’s happened with retail, and claim that the end of globalization is a change that was already happening, and that has now been accelerated by the pandemic. The World Trade Organization forecasts that global goods trade could fall between -12% and -32% this year, and companies need to plan to no longer depend on global, fragile supply chains, and (possibly) introduce more “local” elements to become more robust (Story)
Building the new information networks
This has also been the week of the big fight between the US president and the large social networks. Behind this is the increasing power that Facebook and Twitter have to shape what articles are read and what videos are watched by people, and also the low barriers for anyone to distribute any kind of message through these apps. This has created a debate on how should these companies manage the news feeds that reach end users. An example is this WSJ article on how Facebook has been trying several strategies (and would have recently shifted to a more “laissez faire” / neutral policy) (Story)
The fight was triggered by Twitter applying one of its control mechanisms to a Trump tweet: On Tuesday, Twitter applied a “fact-checking notice” to two tweets from President Trump, in which he complained about the potential for fraud in mail-in ballots. The social network inserted a small label offering users to “get the (true) facts about mail-in ballots”. Trump didn’t react too well, and claimed that social networks were trying to “silence conservatives”… (Story)
After that, Trump has signed an executive order calling on regulators to clarify when content moderation is in bad faith: And many analysts (including this editorial at the WSJ) have said that this is a mistake, as it could “remove the liability protections that have helped the internet flourish” (Story)
In the middle of all this, Twitter and Facebook have discussed their different approaches in public: On Wednesday, M Zuckerberg said to Fox News that private technology companies “shouldn’t be the arbiter of truth of everything that people say online”, and J Dorsey (Twitter’s CEO) countered that they will “continue to point out incorrect or disputed information about elections globally” (Story)
Pandemic economics
Advertising is emerging as one of the big losers in the pandemic: this week we read more negative predictions about this industry in the near future, with the research firm MoffettNathanson expecting that TV advertising revenue will drop -12% this year, with a -$25.5bn impact on broadcast networks. The problem is not viewership, that has actually increased, but the huge cuts in advertisers’ budgets triggered by the crisis (Story)
After the lockdown, the need to protect workers’ health will increase operating costs for many companies: Amazon for instance has already announced a large expense to prepare its operations to coexist with the virus. Part of the pressure could come from regulators, worried by potential new waves of the epidemic, triggered by people going back to offices. In the UK, the government is being pushed to be more precise on how these regulations should be and to reinforce the role of the regulatory bodies in charge of this (Story)
But tech giants, with deep pockets and strong balance sheets, see the crisis as an opportunity: “Big Tech” is in the middle of what some call a “pandemic M&A spree”, with the “FaaaM” companies having already made 19 deals this year (to date), equivalent to the fastest pace of acquisitions since 2015. The largest among these has been Facebook’s acquisition of an approx. 10% stake in Reliance Jio for $5.7bn, but there are other big ones… (Story)
The last “Big Tech” deal could be linked to a driverless car startup: This week we learned that Amazon is in talks to buy Zoox, an autonomous vehicle company, in what would be the first purchase of Amazon in this emerging industry. This could be related to Amazon’s own logistics project, as Zoox has been testing a fleet of self-driven utility vehicles. The company was valued by $3.2bn at the last funding round 2 years ago, so even if the price could be lower in this crisis days, the deal probably won’t be too cheap (Story)
Is Google looking to enter the Indian telecom market? Just like Facebook did some weeks ago, the rumor now is that Google could be exploring the acquisition of a stake in Vodafone Idea. Maybe, after hearing about Facebook’s plans for WhatsApp from within Jio, Google now thinks that India could be the first market where “full convergence” between telecoms and apps happens, and they don’t want to miss a piece of the pie. But it is just a rumor for now… (Story)
The new age of entertainment
AT&T is finally launching its own Netflix competitor. Is it too late? Yes, the streaming video space has been one of the winners in this crisis, but it is also starting to be overpopulated, with Netflix, the leader, already suffering competition from Amazon, Disney and Apple. But other Hollywood “majors” want to join the party. The next one is Warner, and its current owner AT&T, which just launched HBO Max, a “direct to consumer” app leveraging the HBO brand and their powerful content catalogue. Let’s see what happens, but the service is more expensive than its competitors (at $15/month) and (as we just said) entering an overcrowded space. Still, they aspire to 50m subscribers by 2025 (Story)
What’s sure is that they’ve had a bumpy start: HBO Max’s initial week has faced some commercial challenges, as AT&T has not been able to close distribution deals with the 2 largest streaming-player platforms in the US: Roku (38% of the market) and Amazon (32%). It is not clear if AT&T’s own set top box base (from its payTV offer) will be enough to offset this initial headwind pressure (Story)
Meanwhile, deep-pocketed competitors are reinforcing their offers: A good example this week is Apple, that has just signed an exclusive deal with Martin Scorsese to distribute his next film, starring Leonardo DiCaprio and Robert DeNiro. Also a sign of the acceleration of change, in this case linked to lots of uncertainties on the future of movie theaters (Story)
Are we entering the golden age of video games?: We’ve already seen how good the financial results of some video game companies have been this quarter, again a sign of acceleration, as they’re now on the way to reach all segments of the population. Technology could help them go even further, as shown by these news about how AI is starting to make it possible to introduce more “lifelike behaviors” in game characters (Story)