Gafa & Covid 19: Crisis? What Crisis!?

The Gafa have done well out of the lockdown, which has delighted some and worried others.

The Gafa have done well out of the lockdown, which has delighted some and worried others.


In stark contrast to the rest of the global economy, which has been brought to its knees by the coronavirus, tech giants Google, Amazon, Facebook and Apple – or Gafa for short – have gone from strength to strength in 2020. A situation that has seen them face accusations of being to too big or even detrimental to the economy at large.

What abiding memories do you have of the long lockdown months? No doubt a strong desire to avoid being in confined spaces such as shops and supermarkets, long text or email conversations on your phone or laptop and socializing with friends by video call figure prominently.

The lockdown saw our lives change, and not for the better, but it’s an ill wind that blows no one any good, as the saying goes, and the Gafa have benefitted enormously from our new way of life under Covid 19. Now, as governments around the world strive to introduce ambitious economic recovery plans, Amazon and co popping the champagne corks is not the best of looks.


Lockdown luck
The Gafa’s second-quarter results, published on August 31st, were eye catching to say the least. Amazon boasted turnover up 40% in relation to the same period in 2019, thanks to an unprecedented boom in e-commerce during the lockdown, a boom that was not dented by France deciding to shutter its six distribution centers in mid-April for a time.

The Seattle group has also benefitted handsomely from cinemas being closed and people being stuck at home. Subscriptions to its streaming service, Prime Video, rose dramatically during the second quarter, with its Prime Video Cinema service even offering the latest Hollywood releases, such as Pixar’s latest effort Onward, or the Elisabeth Moss vehicle, The Invisible Man on VOD. With an unprecedented number of professionals working from home in 2020 AWS (Amazon Web Services) also saw immense growth.

Apple, for its part, went into the lockdown at a serious disadvantage, when CEO Tom Cook announced in mid-March that all Apple stores would be closing with immediate effect, in order to minimize the spread of the virus.

"Given the misgivings the authorities on both sides of the Atlantic share about the growth of the Gafa, it seems that more regulation may well be in the pipeline, but despite their monopolistic positions, it is unlikely that there will be any concerted pressure to break these organizations up"


Analysts at the time, who predicted a second quarter decline in turnover of 3% for the group, have ended up with egg on their face: Apple’s quarterly turnover in fact jumped 11% to 59.7 billion dollars, 13 billion of which was due to services such as the Appstore, Apple Music and Apple Pay. The business of Iphones was healthy too, with sales of the Iphone SE handset accounting for 30% of the 45 million smartphones sold worldwide in April, May and June.

Fortune also favored Facebook during the same period, with turnover at the Mark Zuckerberg led company up 11% and profits hitting a record high 18.7 billion dollars. And while a number of large groups have slashed their advertising budget in light of the coronavirus, ads on social networks sold like surgical masks during the lockdown, which accounted for Facebooks record returns this spring.

Only Google failed to increase its profits, with results shrinking 2% for the quarter, but even this can be framed as a positive result, given the adverse market conditions. Unsurprisingly, video-streaming platform Youtube performed exceptionally, offsetting losses in other divisions. Google CEO Sundar Pichai hinting at “signs of stabilization” this summer, which should encourage shareholders ahead of the next quarterly results meeting at Halloween.  


Record results
The Gafa’s overperformance has been cheered by the markets as ray of bright sunshine amid the general gloom of the world recession. In September, Amazon’s market capitalization reached its highest level ever, at 1.2 trillion dollars – a considerable sum which, by way of comparison, is a hundred times greater than the market cap of leading international supermarket chain Carrefour. The result should cement Jeff Bezos’ position as the richest person in the well world beyond 2020.

Apple has gone one better, becoming the first US public company in history to achieve a market cap of $2 trillion, which it did in August. Excellent news for the Cupertino CA company, which had briefly lost its title of highest valued company in the world to Aramco at the end of 2019. These results have been good for the economy too, with Amazon, for example having hired and additional 100,000 workers across the globe since the start of the year.

And yet, not everyone is pleased. The Gafa’s ever-increasing power has many politicians concerned, even those on Capitol Hill. On July 30th, the bosses of the Gafa, the aforementioned messrs. Bezos, Zuckerberg, Cook and Pichai, faced a five-hour grilling by video call by members of the US Congress, some of whom believe that their dominance is stifling competition, innovation and even hindering the post-coronavirus recovery, with Rhode Island senator David Cillicine declaring, “Our founders would not bow before a king, nor should we bow before the emperors of the online economy.” During the hearing Google was accused of “stealing the content of honest companies” and “abusing its position to crush competition,” while Bezos, when it was his turn, fielded accusations Amazon “intimidated” and “panicked” storeowners.


The EU turns the screw
In the European Union, the world’s number one commercial and economic power, the Gafa have come under increased scrutiny in recent years, with both Brussels and individual member-states insisting that Big Tech should contribute to the economic relaunch. In order to finance its 750 billion euro relaunch plan, the EU has the firm intention of making the Gafa pay a significant contribution. And for once the Gafa’s strategy of divide and conquer is unlikely to work, there are no dissenting voices in the bloc this time.

Given the misgivings the authorities on both sides of the Atlantic share about the growth of the Gafa, it seems that more regulation may well be in the pipeline, but despite their monopolistic positions, it is unlikely that there will be any concerted pressure to break these organizations up, at least not in the interim. The fact is the Gafa’s size and influence makes them key players in the post Covid-19 recovery. And this gives them power to rival even that of a sovereign nation.          

 

 

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