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Big tech could emerge from coronavirus crisis stronger than ever
WHILE the rest of the economy is tanking from the crippling effects of the coronavirus, business at the biggest technology companies is holding steady - even thriving.
Amazon said it was hiring 100,000 warehouse workers to meet surging demand. Mark Zuckerberg, Facebook's chief executive, said traffic for video calling and messaging had exploded. Microsoft said the numbers using its software for online collaboration had climbed nearly 40 per cent in a week.
With people told to work from home and stay away from others, the pandemic has deepened reliance on services from the technology industry's biggest companies while accelerating trends that were already benefiting them.
Amazon has muscled in on brick-and-mortar retailers for years, but shoppers are now turning to the e-commerce giant for a wider variety of goods, like groceries and over-the-counter drugs.
Streaming services like Netflix have dampened box office sales for movies in recent years. Now, as movie theaters close under government orders, Netflix and YouTube are gaining a new audience.
Companies were already dumping their own data centres to rent computing from Amazon, Microsoft and Google. That shift is likely to speed up as millions of employees are forced to work from home, putting a strain on corporate technology infrastructures.
Even Apple, which once appeared to be among the US companies most at risk from the coronavirus because of its dependence on Chinese factories and consumers, appears to be on good footing. Many of Apple's factories are nearly back to normal, people are spending more time and money on its digital services, and on Wednesday it even released new gadgets.
"The largest tech companies could emerge on the other side of this much stronger," said Daniel Ives, managing director of equity research at Wedbush Securities.
That's not to say to say major technology companies shouldn't be worried. Advertising, the lifeblood of Google and Facebook, tends to suffer during economic downturns. The stocks of Apple, Microsoft, Amazon, Facebook and Google's parent company, Alphabet, have collectively lost more than US$1 trillion in market value from a month ago, when US stocks traded at record highs. And Microsoft and Apple have cut their short-term financial forecasts because of slowing consumer spending.
Beyond the biggest companies, it is more of a struggle. Communication tools like videoconferencing service Zoom are now essential, but ride-hailing firms like Uber and Lyft and property-rental sites like Airbnb are seeing customers vanish.
The US$3.9 trillion global technology industry will suffer this year, though just how much remains unclear. In December, research firm IDC forecast 5 per cent worldwide growth for sales of hardware, software and services in 2020. After it became apparent a month ago that the coronavirus would disrupt supplies and cut sales in China, IDC said annual revenue might inch ahead at only 1 per cent. That now looks decidedly optimistic, said Frank Gens, chief analyst at IDC.
But when the economy does eventually improve, Big Tech could benefit from changes in consumer habits. And despite more than 18 months of criticism from lawmakers, regulators and competitors before the pandemic hit the United States, the biggest companies are likely to finish the year stronger than ever.
While Amazon has changed shopping habits for items like books, getting customers to trust it with groceries has been challenging. Now, as more people are forced to stay home, one of the last strongholds of physical retailing may be coming under pressure.
As more customers try different Amazon services, they may create permanent shifts in buying habits, said Guru Hariharan, a former Amazon employee and the founder of CommerceIQ, a company whose automation software is used by major brands like Kellogg's and Kimberly-Clark.
Stay-at-home orders are unsurprisingly increasing traffic to video streaming sites, apps and social media platforms. Downloads of Netflix's app - a proxy for traffic from the streaming site - jumped 66 per cent in Italy, according to data from Sensor Tower, an app data company. In Spain, they rose 35 per cent. In the US, where Netflix was already popular, there was a 9 per cent bump.
The shift to work at home has also demonstrated the merits of cloud computing when use unexpectedly spikes. For companies managing their internet infrastructures, making adjustments to computing needs on the fly is expensive and complicated. Cloud computing makes it easier.
Amazon, Microsoft and Google, the three major cloud-computing platforms, are swimming in cash and offering deep discounts for renting the underlying infrastructure for a corporate network as well as the software used by employees. NYTIMES