The current crisis is likely to be no different from the previous ones, which saw rapid behavioural changes. The global financial crisis 11 years ago, for example, pushed businesses away from buying software outright to pay-as-you-go software-as-a-service licences and consumers away from brick-and-mortar stores towards online shopping. The advent of the smartphone at the start of the 2008 crisis laid the groundwork for many a game-changing business, like the sharing economy, including ride hailing and Airbnb.
The big winners this time are likely to be the tech giants or the Apples, Microsofts, Googles and Facebooks of the world, which have huge cash piles on their balance sheets. The crisis will likely make Big Tech stronger than they have ever been. Amazon.com, the logistics and e-commerce behemoth, has emerged as a utility of sorts, delivering essentials such as toilet paper to American homes as well as groceries, household goods and books. Amazon Prime members are able to watch movies and TV serials or listen to music while confined to their homes. With same-day and two-hour delivery in place, consumers will purchase goods online more often, perhaps multiple times a day. Most of Amazon’s profits still come from its cloud services arm, Amazon Web Services.
The big losers are likely to be less-agile, mid-sized or larger firms with weaker balance sheets. Smaller firms tend to be fairly entrepreneurial and nimble, and they easily find ways to navigate a crisis.
Among the sectors that are likely to do well are healthcare, remote working, remote learning as well as e-learning. School children in America are already attending classes from home via video conferencing and emailing homework during the lockdown. Working and studying from home requires software that runs anywhere and enables collaboration. Among the big winners of the work-from-home boom are video conferencing firm Zoom Video Communications and messaging app operator Slack Technologies.
Both Slack and Zoom have an easy-to-access free tier, apart from the corporate version, which allows companies that have not bought the software on subscription to try it out before signing on for it. The average number of messages sent everyday by Slack users is up 20% over the past two months. When the pandemic winds down, it will have left an indelible mark on the workplace.
Other beneficiaries include exercise equipment firm Peloton Interactive and telemedicine firm Teladoc Health, which helps distribute healthcare away from doctor’s clinics, where they will see only the most serious cases, to patients’ homes. The healthcare industry generates 5% of the world’s data but is one of its least digitised industries. Data-driven technologies such as robotic surgery and artificial intelligence-assisted diagnostic imaging are emerging as the new hot technologies.
Another winner is logistics and delivery firms. No one has been making money in the food delivery business because competition is fierce, barriers to entry are too low and revenues are paltry. Though there is still no visibility on profits, having been in a lockdown, they have been a lifeline, bringing me groceries, food, medicine from the pharmacy and even my laundry. As e-commerce grows, the total addressable market for delivery will grow and they will get more funding. Eventually, the top players might be able carve a viable route.
The coronavirus crisis has precipitated the largest work-from-home experiment in history. After the first two weeks, US firms are already declaring it a huge success. When the crisis is over, companies will reassess their real estate needs, have more of their staff work from home and slash their office budget. For most companies, office real estate is a big cost. Companies will always need offices, but if they can cut 30% off their real estate budgets, they will have more resources available for marketing, and development of new products and services that will help them grow or differentiate themselves.
Clearly, commercial real estate will never be the same again in major global cities — not New York, San Francisco, London or Hong Kong. The same thing will happen to malls in key cities. If you have been in a lockdown for a few weeks, you would have rediscovered the joys of online shopping. Why would you venture to a mall when the lockdown ends? Shares of the biggest US mall operator Simon Property Group are down 70% from their February peak.
Housing in downtown metropolitan areas will not be much different. It is expensive to live closer to downtown offices in New York or London. If more people can work remotely and only need to go into the office two days a week, or only for special meetings, they would rather live in a bigger but far cheaper house an hour or even a 90-minute commute away. And if you are working from home, you would probably choose to live in a bigger home because you will spend a lot more time there. It would also mean that suburban real estate will be at a premium.
The crisis has also provided a new tailwind for digital payments. Cashless payments have been preferred to combat Covid-19 because cash notes have the potential to be “super carriers” of the virus, which lives longer on objects than on human hands because enzymes in our sweat break down the virus more quickly. Plastic credit and debit cards are not a solution because they harbour more germs than a public toilet. The safest means of payment is using the mobile phone to make contactless payments such as through Apple Pay and digital wallets including Square’s Cash App or PayPal’s Venmo at cashiers, or when using public transport. The Covid-19 crisis is tailor-made for boosting digital wallets. With sporting venues around the shut down, another big winner is e-sports. Though crowds will eventually return to soccer, baseball, cricket and basketball stadiums, e-sports will have a far bigger following in the pandemic’s aftermath.
A big loser will be local print publications which have not been able to deliver papers during lockdown or forced to trim their print run, urging subscribers to read online editions. How many will go back to reading print editions after the lockdown is unclear.
Covid-19 has dramatically transformed the venture capital-backed start-up world. Financing for start-ups has dried up. Indeed, talk in the venture capital community is that valuations are being marked down by 30% to 40%. Once the pandemic fizzles out, it will dawn on founders that in a post-Covid-19 world, many of the start-ups will not be needed. Others just will not get funded. Some start-ups, which will be left for dead, may have useful technology and indeed might even turn a profit some day. But it just does not make sense for venture capitalists to keep throwing money after them anymore. In good times, all sorts of ideas, even marginal ones, get funded. But when times are tough, as they are now, even ideas that deserve funding are passed on because there are better returns elsewhere. Already, more than 35 start-ups in San Francisco have announced layoffs and at least two are shuttering. More closures and layoffs across the Valley are next.
Another key change in the aftermath of Covid-19 will be how much the US and Europe will resemble China as they embrace surveillance. Facebook, Google and Amazon collect more data than their Chinese counterparts but, for now, most of that data is used to sell ads or goods and services. Western democracies have traditionally valued individual civil liberties more than concerns about larger threats such as national security and pandemics. In the US, a lot of that changed in the aftermath of the 9/11 terrorist attacks. Americans agreed to sacrifice some of those freedoms and collectively backed the Patriot Act, which armed law enforcement agencies with new tools to detect and prevent terrorism. It was a new social contract between Americans and their government: You keep America safe and we will close an eye to some of the things security agencies need to do to achieve that.
Covid-19 is likely to do something similar with surveillance. The lesson the US has learnt from this crisis is that China minimised the pandemic with its ability to take all the data being collected by e-commerce giant Alibaba Group Holding, mobile gaming behemoth Tencent Holdings, TikTok and Toutiao owner ByteDance, and search engine Baidu, alongside Chinese cellphone operators, and use it to trace how just about every citizen moved and whom they came into contact with.
The longer Americans are in lockdown mode, the more likely they are to agree to compromises on issues such as civil liberties, which will allow the government to tap the data that Facebook, Google, Amazon, Apple and cellular service providers constantly gather to keep track of them.
Long after Covid-19 is over, you and I will be worried — when we go to an office building, a sports stadium, restaurant or social gathering — about whether we are in proximity to someone carrying a contagious disease. The bet that policymakers are making is that increasingly more people will be willing to be tracked through a nationwide contact tracing network and tested for their temperature almost everywhere to protect themselves. While Big Tech will provide the enabling technologies, it will not be able to use that data to sell ads or goods and services. Clearly, in the aftermath of coronavirus pandemic, we are likely to see radical changes in our lives and business practices, as well as healthcare and the way digital technologies are used.
