Why COVID-19 Might Be a Blessing in Disguise for Startups

Published May 5th, 2020 - 11:00 GMT
Why COVID-19 Might Be a Blessing in Disguise for Startups
Big Tech has bucked the S&P 500 downward trend even as the virus continues to keep the stock markets jittery. (Shutterstock)
Highlights
The government in different countries will continue to intervene to ensure that Big Tech does not stymie local businesses.

Size does not matter for Covid-19. The virus is like a surging river that is sweeping everything along the way. All preconceived notions about treating Covid-19 are falling short. Countries of all shapes and sizes, of all types of weather systems, of all kinds of races, of all qualities of healthcare systems have been ravaged by the virus.

 As it impinges on our lives, so it impinges on our economies, our businesses. The economic fallout of coronavirus is bad news for companies regardless of size. 

However, the story is quite different for Big Tech. Microsoft, Alphabet, Facebook, and Apple have reported a better than expected first-quarter result. Big Tech has bucked the S&P 500 downward trend even as the virus continues to keep the stock markets jittery. While Amazon had mixed Q1 results because of Covid-19 related e-commerce costs, its cloud business grew by 33 per cent as compared to last year.

In Q1 of 2020, Facebook's revenue grew 18 percent as compared to Q1 2019. Even though its ad revenue fell in March, it saw the business stabilise in April. Bear in mind that most lockdowns took effect in mid-March, so April should have been worse. 

Both Google and Facebook saw their ad revenue stabilise in April, buoyed by increased spending by gaming, technology and retail. But above all, it's the gravitation pull of its enormous network that is attracting everything and everyone. 

It doesn't take a genius to understand why this is happening. People under lockdown are buying stuff online and spending more time on social media, checking for updates, and video calling. There are as many as 800 million daily active users participating on Facebook and Instagram livestreams that are replacing physical events. 

The industry has heaved a collective sigh of relief as Big Tech has shown sustained revenues. At least something is working. This is even more meaningful at a time when economic uncertainty has baffled even Warren Buffet the 'Oracle of Omaha'. The problem is not that he dumped all his shares in the four US airlines, but that he has little certainty about the future. 

Big Tech too finds it difficult to predict its earnings for the next few quarters, yet it is continuing to hire people and invest in what it does best, research and product development. Facebook's recent $5.7 billion investment in India's Reliance Jio platform feels like an announcement from a different era. 

While startups are running out of cash and laying off employees, Big Tech sitting on a pile of cash has the rare privilege to comfortably sit out the storm. But it won't sit idle and pass up the golden opportunity to acquire cutting-edge tech companies without so much as batting an eye. 

The growing dominance of this rarefied club is giving rise to anxious murmurings about the crisis serving to widen the gap between Big Tech and the rest. Should smaller technology companies pack up and leave? Is Big Tech truly invincible? The answer lies in the Covid-19 pandemic.

As the pandemic is disturbing status quo, there will be tectonic shifts in how we work, how we learn, and even how we think. When the storm recedes, we will not go back to where we were. Warren Buffet is not sure if people will travel in the same way they did before the virus grounded the airlines. We will actually be in a different state. Our social interactions will change forever. The way we perceive our surroundings will change forever.

It gives tech companies, especially those selling directly to customers, a window of opportunity to offer a digital service that understands this changing consumer behaviour. There is a need for a social media platform for specific interest groups and like-minded individuals. It's hard to find good resources to enhance our skills. We are more open to participating in virtual events.

Covid-19 exposed yet again the dangers of misinformation floating on social media. Facebook ramped up its army of fact checkers who marked in excess of 4,000 articles on Covid-19 as false. This meant that Facebook users saw warning labels on some 40 million posts. This manual resolution of a digital problem feels like a stand-in solution. Covid-19 is prompting discerning people to ask for the source of information that their friends are sharing with them. 

It would be more convenient to have social media platforms with more transparency on the source of information, where we choose what we want to see on our wall. Today, Facebook or Instagram largely decides what we see. 

The government in different countries will continue to intervene to ensure that Big Tech does not stymie local businesses. European Union's antitrust division has been investigating Big Tech's anti-competitive activities and penalizing the tech companies with billions of dollars of fines. 

Yet, the true diversity of digital services will arise from digital companies' ability to meet the shifts in consumer behaviour and needs. Those that try to perpetuate the old ways will feel like relics of the past. While Big Tech may not be slowing down, opportunity will smile on anyone willing to bet on the new.

Shalini Verma

The views/opinions expressed in this article are those of the author and do not necessarily reflect the views and opinions of Al Bawaba Business or its affiliates.


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