Big tech will save us after the pandemic is over

LAST month, as the coronavirus started to spread in the United States, I wrote about a smallish online conferencing company, Zoom Video Communications, saying that we might want to pay attention to it because it makes working from home easier. Well, with the escalating crisis, Zoom is now worth more than four airlines combined - United, Delta, American and JetBlue - with a market cap of just above US$44 billion.

With all due respect to Zoom, which makes a very good product that is very useful, sometimes problematic (do a search for "ZoomBombing") and even delightful (there has been a Zoom wedding) things happen that are just insane.

How crazy? Well, along with its huge valuation, Zoom has seen its share price go from US$62 about a year ago when it went public to close to US$160 on Tuesday. The company has an unheard-of price-to-earning ratio of 1,865 (this is a usually considered a good measure of a company's true value; by way of comparison, Facebook's is 23 and Google's is 21).

This is Wall Street over-indexing to very dire problems - so it's a good time to assess how the coronavirus crisis will actually affect big tech. How will the most important industry in the United States emerge from a financial slump? How will government efforts to alleviate the pain of the crash affect the industry? Given tech's outsized role in both the stock market and the larger economy, how the industry fares will be important to the overall recovery.

Let's start on a positive note: Despite having lost big chunks of market value since the beginning of the year, nearly every company among the big five (Microsoft, Apple, Amazon, Alphabet, Facebook) will do just fine when this crisis eventually passes.

That's because all are larded up with cash, and some have a nearly monopolistic grip on their business arenas, such as online advertising (Google), e-commerce (Amazon) and social media (Facebook), that are not going away. That is a head start that lesser rivals - who will now have to eat up their seed corn to stay viable - cannot compete against.

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There will be a culling of most competitors of these giants that will only strengthen the power and reach of the behemoths, eliminating pesky roadblocks to their further domination. This is obviously not a good thing in the long run.

As the economy returns to normal, the impulse will be towards bolstering big corporations in hopes that they will repair the unemployment problem. And those companies that are able to hire and protect their employees will be the most feted, and their success will be one of the key benchmarks of the economy's health.

Its main ad business will no doubt take a hit over the next few quarters, but Facebook is reporting a jump in video views, messaging and news consumption, as users try to connect online while sheltering in place. To keep generating good will, Facebook has been handing out extra pay to its employees, while also donating face masks it had bought last year for the California wildfires.

Alphabet's Google search service and YouTube video unit - also subject to the vicissitudes of the advertising market - have seen surges in use, while many of the company's other products and its cloud services are doing well. And that trend will persist as more Americans are using these services more intensely and becoming accustomed to their efficacy.

MAIN BENEFICIARIES

Amazon will be one of the main beneficiaries of the crisis as more consumers use its delivery and entertainment services, and as more companies move over to its cloud business, Amazon Web Services. So too for its analogue Whole Foods Market, which has remained open during the slowdown for both delivery and walk-in customers. Amazon said last week it was looking to hire 100,000 warehouse workers to meet the increased demand, which is no surprise.

And so it goes: Apple's supply chain from China is being restored as that country recovers ahead of the rest of the world from Covid-19, and its diversification into other services such as streaming has only been bolstered by the crisis. Microsoft's cloud service and Teams collaboration product have also experienced a spike in use.

And one major plus for all of them: Their questionable behaviours around competition, the spread of disinformation and hate speech, addiction and more will not be subject to the same regulatory scrutiny that had been building over the last year. In fact, it seems less likely that government officials - in the United States, at least, where their hands are full with more pressing issues - will be as enthusiastic to pass legislation or levy fines to thwart the growing power of tech.

Still, some big tech companies are vulnerable. Airbnb, the home-rental giant that has seen its listings drop precipitously, will likely not go public this year as planned. The company will probably need to raise more funds at less attractive terms to add to its US$4 billion in liquidity, and need to do yeoman's work to re-convince its hosts and customers that high-analogue-touch businesses are OK (side note: Their hotel rivals are even more exposed).

The same is true for the car-sharing leader, Uber, which was already struggling with increased costs as states seek to recategorise their drivers from contract workers to employees entitled to benefits. And getting people back into the habit of using Uber cars instead of their own after the pandemic ends will be a heavy lift.

As for the scooter and other alternate mobility businesses that Uber has been building, along with competitors such as Lime and Bird, it is going to be a bumpy ride. The only saving grace is that the onset of warmer weather could mean increased usage.

But there is one major thing that tech companies cannot avoid: taxes. As the well-known Silicon Valley investor Chamath Palihapitiya pointed out in an interview this week: "It's where the money is, so it is where governments are going to go when they need relief." He added that a federal role in backing businesses will make it a bigger player in tech and beyond. "All US citizens will all become shareholders in a way," he said.

Governments are racking up ginormous deficits for stimulus packages, and they will have higher costs for health care - and as Mr Palihapitiya noted, all of this has to be paid by someone. There is no question that governments will turn to businesses with huge profits to help foot the bill. That means big tech, more than any other industry, both here in the United States and abroad.

Because there are two things we can always rely on, during this horrible pandemic and in normal times: death and taxes. NYTIMES