A Blog by Jonathan Low


Jun 9, 2021

How Big Tech Won the Pandemic

The income of the five biggest tech companies - Amazon, Apple, Google, Microsoft and Facebook - is now 25% higher than it was at the beginning of the pandemic. To accomplish that, they did what smart businesses should do when confronted with changing circumstances; they cut costs that mattered less in a time of resource allocation choices and invested significantly in assets and services that reinforced their advantages. What was especially notable was the speed and agility with which they were able to scale the decisions that enhanced their position.

It was not, initially, a given that these companies would benefit from quarantines and recession, but the big tech companies quickly adapted and, importantly, invested in people and processes to both meet and anticipate growing demand driven by the pandemic. They are now realizing the benefits of optimizing those variables. JL

Shira Ovide reports in the New York Times:

The combined yearly revenue of Amazon, Apple, Alphabet, Microsoft and Facebook is now $1.2 trillion, 25% higher than as the pandemic started in 2020. In less than a week, those five make more than McDonald’s does in a year. The pandemic created an economy (in which) people and businesses had even greater demand for what the tech giants were selling. We needed their services. And the tech giants used the pandemic to get stronger, cutting costs on travel, entertainment and marketing. Google saved $1 billion. (And they) spent big in areas that extend their advantage. Amazon spent $50 billion warehouses and cloud computing. That’s double what Exxon Mobil spends to dig oil and gas.

In the Great Recession more than a decade ago, big tech companies hit a rough patch just like everyone else. Now they have become unquestioned winners of the pandemic economy.

The combined yearly revenue of Amazon, Apple, Alphabet, Microsoft and Facebook is about $1.2 trillion, according to earnings reported this week, more than 25 percent higher than the figure just as the pandemic started to bite in 2020. In less than a week, those five giants make more in sales than McDonald’s does in a year.

The U.S. economy is cranking back from 2020, when it contracted for the first time since the financial crisis. But for the tech giants, the pandemic hit was barely a blip. It’s a fantastic time to be a titan of U.S. technology — as long as you ignore the screaming politicians, the daily headlines about killing free speech or dodging taxes, the gripes from competitors and workers, and the too-many-to-count legal investigations and lawsuits.

It was a strange and amazing year for Big Tech. I can’t believe it, but some of the companies are growing faster and are more profitable than they have been in years.

The pandemic has made the tech giants and their bosses unfathomably rich. (Even more unfathomably rich than they were before.) Apple has so much extra cash that it’s spending an additional $90 billion to buy its own stock, nearly the equivalent of Kenya’s gross domestic product. Of the 10 richest people in the world, eight made their fortunes from tech companies. The man at the top, Amazon’s Jeff Bezos, alone is worth more than one-and-a-half Goldman Sachs.

America’s technology superpowers aren’t making bonkers dollars in spite of the deadly coronavirus and its ripple effects through the global economy. They have grown even stronger because of the pandemic. It’s both logical and slightly nuts.

How did this happen? I’ll give you two explanations. First, the pandemic created a peculiar economy that benefited some people and industries, including in technology, even as it battered others. In the last year of crisis, people and businesses had even greater demand for what the tech giants were selling.

That might seem obvious now, but it wasn’t necessarily a year ago. Americans’ love of home shopping became a safety necessity for some people. Families bought iPads and Macs as work and school went virtual. Any business that still had money to spend on marketing spent it on Google, Facebook or Amazon. Companies might have cut back in other areas, but they definitely bought software from Microsoft and Amazon.

Second, the tech giants used the pandemic as a moment to get stronger. In some cases, that meant cutting costs where it matters less, like on travel, entertainment and marketing. Google said it was saving more than $1 billion a year on those types of expenses.

On the flip side, the tech giants spent big in areas that extend their advantage. Amazon spent $50 billion in the last year on big-ticket purchases like warehouses and cloud computing hubs. That’s more than double what Exxon Mobil spends to dig oil and gas out of the ground each year. Again, bananas.

The wildly successful last year also raises uncomfortable questions for tech company bosses, the public and elected officials already peeved about the industry: Is what’s good for Big Tech good for America? Or are the tech superstars winning while the rest of us are losing?

Americans have more money in their pockets thanks to government stimulus checks and pandemic savings, and the tech giants are getting a significant share. Their combined revenue is equivalent to roughly 5 percent of the gross domestic product of the United States.

Big Tech’s pandemic big bucks have an understandable root cause: We needed its services.

People gravitated to Facebook’s apps to stay in touch and entertained, and businesses wanted to pay Facebook and Google, which Alphabet owns, to help them find customers who were stuck at home. People preferred to buy diapers and deck chairs from Amazon rather than risk their health shopping in stores. Companies loaded up on software from Microsoft as their businesses and work forces went virtual. Apple’s laptops and iPads become lifelines for office workers and schoolchildren.

Before the pandemic, America’s technology superpowers were already influential in how we communicated, worked, stayed entertained and shopped. Now they are practically unavoidable. Investors have scooped up Big Tech shares in a bet that these companies are nearly invincible.

“They were already on the way up and had been for the best part of a decade, and the pandemic was unique,” said Thomas Philippon, a professor of finance at New York University. “For them it was a perfect positive storm."

Times weren’t so good for these companies in the last economic rough patch. In the downturn from 2007 to 2009, Microsoft’s sales dropped slightly, and its stock price fell 60 percent from the fall of 2008 to March 2009, a low point for U.S. stocks. Google and Amazon each lost as much as two-thirds of their market value.

One sign of how this time is different: Amazon’s revenue is growing much faster in 2021 than it did in 2009, when the company was one-fifteenth its current size. Sales in the first quarter rose 44 percent from a year earlier, and Amazon’s profits before taxes — which have never been exactly robust — more than doubled to $8.9 billion. Businesses are addicted to Amazon’s cloud computer services, where sales rose 32 percent, and shoppers can’t live without Amazon’s delivery. Investors love Amazon, too. The company’s stock market value has nearly doubled since the beginning of 2020 to $1.8 trillion.

For the other tech giants, it’s as if their brief pandemic nosedive never happened. Advertising sales typically rise and fall with the economy. But as other types of ad spending shrank when the U.S. economy contracted last year, ad sales rose for Google and Facebook. The growth was even better for them in the first three months of this year.

A year ago, analysts worried that Apple would be crippled as the pandemic gripped China, which is the hub of the company’s manufacturing operations and its most important consumer market. The fears didn’t last long. In the first three months of 2021, Apple’s revenue from selling iPhones increased at the fastest rate since 2012. Sales in mainland China, Taiwan and Hong Kong nearly doubled from a year earlier.

The tech giants are not the only companies rallying in dark times. America’s big banks have also been on a tear. So have some younger technology companies, such as Snap and Zoom, the maker of the pandemic-favorite videoconferencing app. The crisis forced all sorts of businesses to go digital fast in ways that could help them thrive. Restaurants invested in online sales and delivery, and doctors went full bore into telemedicine.

But the dictionary doesn’t have enough superlatives to describe what’s happening to the five biggest technology companies. It’s all a bit awkward, really. It’s rocket fuel for critics, including some regulators and lawmakers in Europe and the United States, who say the tech giants crowd out newcomers and leave everyone worse off.

Big Tech companies say they face stiff competition that leads to better products and lower prices, but their bank statements might suggest otherwise. Facebook’s profit margins are higher now than they were before the pandemic.

Some of their success is explained by the peculiarities of the pandemic economy. Some people and sectors are doing awesome, while other families are lining up at food banks and while companies like airlines are begging for cash. Unlike the stock market clobbering in the Great Recession, stock indexes in the United States have reached new highs.

The tech superstars have also capitalized on this moment. Amazon’s work force has expanded by more than 470,000 people since the end of 2019. That deepens the moat separating the tech superstars from everyone else.

Big Tech is emerging from the pandemic lean, mean and ready for a U.S. economy expected to roar back to life in 2021. Meanwhile, there are still long lines at food banks. Some American workers who lost their jobs last year may never get them back. Housing advocates are worried that millions of people will be evicted from their homes. And being Big Tech is an invitation for everyone to hate you — but you do have towering piles of money.


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