Big Tech Prepares to Emerge Stronger from the Pandemic

Huge profits. Mountains of cash. Hundreds of millions of users. Must-have products and services.

It’s no surprise that Alphabet, Amazon, Apple, Facebook and Microsoft can survive a pandemic. Tech stocks overall have roared to new highs in recent days. Netflix has scooped up millions of new subscribers. Zoom has surged to new heights. Many tech companies are flying high.

What may be a little more unexpected is how powerful tech giants will be in a post-pandemic world, and not just because competitors are weaker and promising startups go bust.

The COVID-19 outbreak has supercharged one area of IT that was already thriving: The cloud, a segment where sales soar some 30% year-over-year as businesses and governments buy remote computing horsepower and storage that they tap into via high-speed internet connections.

The sudden rush to work from home after the onset of the outbreak led to a surge of investment in digital tech. “We have seen two years’ worth of digital transformation in two months,” said Microsoft’s CEO Satya Nadella on a company earnings call last month, citing a sudden spike in users of its video meeting and collaboration software, Microsoft Teams, for schools, hospitals and other businesses. Over the longer term, Microsoft sees the current environment as a tailwind for its business.

The pandemic cemented the fact that cloud computing is not optional anymore. It is a fundamental cost of doing business, operating a government, or running a school. “The cloud is integral to business operations and service providers must maintain datacenter and network performance,” says Stephen Minton, a vice president at market research firm IDC who focuses on IT spending.

Keep in mind that the technology industry overall won’t escape the economic crisis. Global spending on information technology could fall this year by 10% or more as companies put tech projects on ice and consumer demand sinks for gadgets, such as smartphones. Even Microsoft and Apple aren’t immune to the global downturn. Business closures hurt demand for Microsoft’s work software, and the financial hardship of millions of consumers lowers demand for iPhones. Meanwhile, Facebook and Alphabet, reliant on advertising, will suffer as advertising budgets dry up.

But once the recovery gains steam, businesses that are hunkering down to conserve cash will dive headfirst into digital projects. That means upgrading ecommerce websites, plowing more money into digital marketing, and upgrading online collaboration software. It also means more businesses and governments will ditch their own datacenters for the ease and flexibility of the cloud, especially Amazon’s AWS cloud system.

The coronavirus has accelerated a digital shift that will be with us for years. “In general, I would say the highest-level opportunity is across everywhere,” said Sundar Pichai, Alphabet’s CEO, when asked about the pandemic at the company’s recent earnings call. “We see businesses thinking deeper about the shift to digital.” Apple’s CEO Tim Cook noted that lockdowns led many people to discover that they could work and learn remotely. “I think we have significant solutions and products for all of those groups,” he said.

Such comments are par for the course during an earnings call, of course. But they are jarring when other large companies underscore future worries and uncertainties of this unprecedented situation. What’s more, I think these tech CEOs might even be underselling how well-positioned they are for the future.

Plenty of other tech companies are selling shovels in a gold rush. Intel and Nvidia are seeing strong sales of computer chips that power datacenters. Wired and wireless carriers are seeing higher demand for faster and better internet service. More computing power and faster connections create more opportunities for digital startups to harness artificial intelligence, superfast 5G and other advances.

After the virus is vanquished, tech giants will seem insurmountable. Lawmakers in Washington will look harder at ways to rein in big tech for abuses of market power and misdeeds related to privacy. Some of those efforts could lead to strong regulations, but it will take years and won’t curb tech profits much.

However, the tech leaders of today aren’t set in stone. I still think there’s plenty of room for disruption. The history of technology is one of seemingly invincible companies being disrupted by upstarts. The old guard fails to react to a major technology shift or makes a disastrous bet. Sometimes the shift is sudden; other times it’s a slow decline. The key is studying the impact of powerful trends and paying close attention to emerging technologies that matter.

That’s not to say it will be easy to take on today’s behemoths. But the seeds of future hit digital products and services are being planted today as tech entrepreneurs survey a new world hammered by a once-in-a-generation pandemic. Right now, coders are working on better videoconferencing software, education tools and much more. There’s still space for the next big social media app or a new must-have piece of consumer hardware. Or even a better way to surf the internet.

Amazing breakthroughs are in the pipeline. That bodes well for America’s technology race with China. More importantly, it bodes well for a promising future.

I’ve greatly enjoyed sharing my analysis of technology for the past five years. We’re ending Kiplinger Alerts, but we’ll continue to write about these issues in our weekly Kiplinger Letter, which you’ll start receiving by e-mail at no charge in lieu of Alerts, each Friday afternoon. (If you’re already a Letter subscriber, you’ll receive a complimentary extension of your subscription.)

Thanks for reading and please feel free to e-mail me about any tech-related topics in the future.