The coronavirus’s economic wreckage is poised to boost the dominance of tech giants like Facebook, Google and Amazon — and their risks of an antitrust collision with Washington.
The pandemic has hit the biggest tech companies too, of course, with both Google and Facebook reporting this week that their digital ad revenue plunged as the economy began shutting down in March. But their smaller tech rivals are suffering far worse — as are the ad-dependent media companies that have shed tens of thousands of jobs and the vast numbers of brick-and-mortar retailers that may never reopen.
The result is a looming economic imbalance that could provide even more fuel for antitrust hawks from both parties, who say the leading tech companies have spent years abusing their power by bullying and buying up rivals. And that was before the outbreak reinforced society’s growing dependence on the tech industry, leaving millions more Americans buying essential supplies from Amazon while using apps from Facebook, Google and Microsoft to communicate, attend school or conduct business.
“My nightmare scenario is an economic shock that leaves every Main Street firm without Wall Street connections, and every tech startup that is trying to compete with the big guys, starved for cash and vulnerable to predatory acquisition,” Sen. Josh Hawley (R-Mo.) said in a statement to POLITICO. “We can’t stand by and let Amazon, Facebook, Google, and all the rest gobble up all the innovators in our economy.”
The virus “has unmasked how big and powerful these companies are,” said Rachel Bovard, a senior adviser to the Internet Accountability Project, a conservative group partially funded by Oracle that is pushing for antitrust tech probes. “It’s proving that the antitrust scrutiny is either warranted or should be enhanced. ... It will be especially true when we get on the other side and look at the wreckage of small businesses.”
The companies see their roles in the crisis in a much more positive light. "What we do as a company can make a big difference in people’s lives,” Amazon CEO Jeff Bezos wrote in an April 16 letter to shareholders.
For now, though, these are just some of the ways that Facebook, Google and Amazon — along with fellow tech A-listers Apple and Microsoft — could emerge from the crisis even larger:
They are rich enough to weather the storm
Google and Facebook both say their ad revenue is likely to remain depressed as retail, hospitality, travel and other companies scale back their spending. Facebook CEO Mark Zuckerberg even expressed worries about the wider economy, telling investors on an earnings call Wednesday that “I remain very concerned that this health emergency and the economic fallout will last longer than people are expecting.”
But Facebook and its fellow internet titans have a huge advantage over most other companies: piles of cash.
Google’s parent Alphabet had $117 billion on hand at the end of March, while Facebook had more than $60 billion — greater than the gross domestic products of Lebanon, Slovenia or Tanzania. Amazon reported $24.3 billion in free cash flow. That money will help the companies to stave off the layoffs and closures that have sent unemployment soaring to Great Depression levels.
“Google and Facebook could have revenue decline 20 or 25 percent year-over-year, and not have to worry about going out of business,” said Mark Mahaney, managing director at RBC Capital Markets. “More than any other ad-driven business model, Google and Facebook can afford whatever comes out of Covid.”
Their competitors are shrinking or vanishing
Yelp — a longtime critic of Google with antitrust regulators — laid off one-third of its workforce and furloughed another 1,100 employees this month as its revenue from small-business ads shriveled. TripAdvisor, another Google detractor, said it will lay off 900 employees and furlough many of its remaining U.S. workers. Uber, which competes with Google sibling Waymo in developing self-driving cars, is also considering steep layoffs, The Information reported this week.
The plight is even worse for media companies whose ad dollars were already dwindling amid competition from Google and Facebook. Some estimates place the number of U.S. journalists laid off because of the pandemic at more than 33,000. News Corp. — one of the most vocal anti-Google publishers — suspended print editions of 60 of its newspapers in Australia, though U.S. operations and the flagship Wall Street Journal have yet to see cuts.
Startups are also aching, with roughly 30,000 of their workers laid off across the country since the beginning of March. In a note Monday, the National Venture Capital Association said investments in fledgling companies is likely to “drop significantly,” adding that “companies will shut down — at a higher rate than what is inherent to this risky industry.”
And Amazon is poised to have many fewer competitors when the outbreak ends: As many as 100,000 retail outlets are likely to close in the next five years, UBS research analysts suggested in a note last week, as the coast-to-coast shutdowns hasten the trend of shoppers moving online. Some long-established retail names may never recover from the pandemic: The Gap, the San Francisco clothing chain that owns Old Navy and Banana Republic, said last week that it expects to shutter some locations permanently, while J.C. Penney skipped paying interest on bonds this month — the first step toward a bankruptcy filing.
Even when the economy recovers, the big guys will be the first to reap the benefits.
Facebook and Google are poised to bounce back faster than other ad-supported businesses, said Jasmine Enberg, senior analyst at eMarketer. Their platforms allow marketers to essentially flip a switch on online ads, so as easily as they could halt them, they can get them running again. The two companies already control 60 percent of the online advertising market, eMarketer estimates.
“Whenever there's economic uncertainty, advertisers tend to turn to these tried-and-true platforms and they're less likely to be experimental,” she said. “Facebook and Google, at this point, are considered to be essential platforms for advertisers.”
The crisis may set the stage for buying sprees
Amid the last recession, tech companies used their reserves to buy up businesses at a higher clip than normal, with Google scooping up a record 36 companies, according to an analysis by CIO Dive.
Now, the big tech companies will once again have a chance to go bargain hunting — scarfing up talent, intellectual property and rival businesses at much reduced prices. Both Zuckerberg and Alphabet CEO Sundar Pichai said during an earnings calls this week that they would look to invest throughout the downturn, even while slowing hiring in areas other than engineering and product management.
“One of the harder issues for antitrust will be how to manage mergers and acquisitions coming out of this crisis,” said Gene Kimmelman, a senior adviser for the advocacy group Public Knowledge. “Certainly, the big tech firms are sitting on boatloads of cash and they could buy if they thought it made sense. There may be a lot of floundering smaller players.”
Many of these deals could fly under regulators’ radar, even though mergers exceeding $94 million in value usually have to undergo reviews by the Justice Department or Federal Trade Commission. The law contains exemptions, including one that Bloomberg says allowed Google to avoid scrutiny of a 2010 acquisition that helped it cement its dominance in advertising technology.
Public Knowledge has suggested that Congress lower the dollar amounts on deals that require reviews, while Democrats including Massachusetts Sen. Elizabeth Warren, New York Rep. Alexandria Ocasio-Cortez and House antitrust chairman David Cicilline of Rhode Island are pushing to halt almost all corporate mergers during the outbreak.
“We need to stop the big tech companies from bulldozing the competition during this pandemic — and we need to break up big tech,” Warren told POLITICO in a statement.
Some Republicans have rejected that idea, including FTC Commissioner Noah Phillips, who has said data shows merger-and-acquisition activity is actually down. “This is a very odd time to be calling to shut down M&A entirely, in particular because of the important role that it can help in the economy,” Phillips told CNBC this week.
The big players can change the rules — for their own benefit
For the many businesses that have grown to depend on the giants, the biggest frustration is how readily the big players change the rules as they go.
That’s especially apparent with Amazon, which has spent years encouraging third-party sellers to store and move their products through its own warehouses and logistics network. The “Fulfilled by Amazon” program offered the sellers higher ratings, access to Amazon Prime customers and more prominent placement under Amazon’s algorithms.
Then, in mid-March, Amazon cut them off, saying priority for warehouse space would go to “essential goods” such as groceries and sanitation supplies needed during the pandemic. That left many sellers without their biggest sales channel or, in some cases, no way to do business, said Shaoul Sussman, a lawyer representing an Amazon seller in a House Judiciary Committee probe of tech platforms.
Even for sellers that could fulfill orders themselves, Amazon’s algorithm still gave its own products preference over those of rivals that could ship more quickly, due to what the company called an “error.” And at a time of soaring demand for products, Amazon downgraded the listings and ratings for sellers whose products sold out at the warehouse, Sussman said.
Amazon has said it is working on reopening its warehouses to the sellers and correcting their ratings. Meanwhile, the company has taken steps to assist sellers by waiving certain fees and pausing loan repayments, a spokesperson said.
"The temporary changes to our logistics network to meet increased demand resulting from Covid-19 were not designed to advantage Amazon brands, retail vendors or sellers — they have been based on how to best serve customers during the outbreak while helping ensure the health and safety of our employees," the Amazon spokesperson said.
Google has also faced criticism over how it implemented advertising bans related to the coronavirus, under a policy on “sensitive” topics that ended up blocking government public service announcements and left news videos about the pandemic without ad revenue.
Both Google and Facebook declined to comment for this story.
We all need online services more
The coronavirus lockdowns have introduced millions of people to videoconferencing, streaming and online grocery delivery services — building habits that may last long after the pandemic fades.
Amazon, with its vast network of distribution centers and Whole Foods grocery stores, is adding 175,000 workers to keep pace with consumer demand. Facebook says a record 3 billion people have used its main social network plus Instagram, WhatsApp and Messenger to connect online, while Amazon, Google and Apple own video-streaming services that have helped take the place of movie theaters, concerts and live sports.
That’s on top of all the businesses that have shifted their operations online, relying on cloud services and workplace productivity tools as employees are forced to work from home.
All this is a bright spot for society, said Matt Schruers, president of the Computer and Communications Industry Association, adding that tech companies are providing services that consumers highly value during the pandemic.
"We're reaping the benefits of decades of smart tech policy which has fostered a competitive industry," said Schruers, whose group counts Amazon, Facebook and Google as members.
Can they win over the regulators?
That means the tech giants have a new opportunity to amass goodwill.
Some recent polls suggest the reputations of big tech companies are improving, and policymakers in the U.S. and Europe who once maligned the industry are now seeking tech companies’ help to track coronavirus cases, supply essential equipment or crunch data in the search for a vaccine. The CEOs of Apple, Amazon, Google and Facebook were among the dozens of corporate leaders tapped to advise the Trump administration as it plans to reopen the economy.
Industry supporters hope the halo effect will erode Washington’s appetite for new regulations once the crisis ends. And they say now is not the time to threaten companies that are helping keep smaller businesses alive.
"I would caution that now, particularly now, is not the time to create more uncertainty in the small business community,” said Jake Ward, president of the Connected Commerce Council, which represents 5,400 digitally enabled small businesses and counts Amazon, Google and Facebook among its supporters.
Others doubt that the glow will last. Public Knowledge’s Kimmelman noted that AT&T was massively popular with consumers before the Justice Department broke it up in the 1980s.
“We have a history of challenging even the most popular companies if they are violating the law,” he said. “Post-coronavirus, we are going to have a few dominant retailers and a few dominant online distributors of news, information and content. That’s what we need to address."
"how" - Google News
May 01, 2020 at 04:37PM
https://ift.tt/2W8U4aU
How the virus could boomerang on Facebook, Google and Amazon - POLITICO
"how" - Google News
https://ift.tt/2MfXd3I
Bagikan Berita Ini
0 Response to "How the virus could boomerang on Facebook, Google and Amazon - POLITICO"
Post a Comment