History has shown us that in the wake of economic crises, there are always winners and losers. During the Great Depression, Procter & Gamble successfully cut costs on their advertising campaigns and became a top-seller of a much-needed item — soap. After the 2008 recession, popular US retailer Target also expanded their operations and saw their profits double in size.
After the hit of the COVID-19 pandemic in 2020, online tech giants such as Amazon, Facebook and Google found themselves at the helm of our generation’s biggest behavioural shifts. Lockdowns, stay-at-home orders and social distancing as a result of the virus made increased levels of remote work, online shopping, cloud computing and digital advertising the “new normal”.
As we edge closer to a post-pandemic future, many experts and analysts believe that Big Tech will have seized a considerable amount of power — all while steering clear of any accountability. However, what does this spell out for global commerce in 2021 and beyond? Has there been an unfair or immoral advantage to commerce in 2020 as a result of Big Tech forcing profit from COVID-19 — and if so, what can be done about it?
An unprecedented shift in online behaviour
As the pandemic forced everyone to remain indoors, Amazon became a saving grace for those wanting quick, uncomplicated access to household goods and other materials without having to leave their homes. This major shift towards online shopping and cloud computing drove Amazon’s stock to unprecedented heights. Even when the high street opened back up, online shopping was still the preferred choice over social distancing measures, long queues and limited capacity inside retail stores.
Between May and July of 2020, overall consumer spending on Amazon had increased from 60% compared to the same time period in 2019.
Amazon’s e-commerce sales almost doubled in the US, spiking at nearly 93%. In the UK, consumers were estimated to have spent £141.33 billion online — about 35% more than spending observed in 2019. This accounts for more than 30% of total retail sales in Great Britain — a record never before seen before 2020’s figures.
As online activity and social media use increased during the pandemic, figures provided that the levels of targeted advertising on popular platforms did as well. Google’s parent company Alphabet reported a 10% rise in digital advertising revenue when compared to last year’s figures. Facebook also reported a similar increase of 10%, reporting a total of US $18.3 billion for the last quarter of the year.
Amazon’s hefty monopoly
As of now, Amazon currently holds 38% of the e-commerce market. While this level of power was already under fire before the start of COVID-19, the extraordinary shift in consumer behaviour caused by the pandemic has now fanned the flames.
In the summer of 2020, US Congress brought the hammer down onto the CEOs of Amazon, Facebook, Apple and Google in an attempt to hold them accountable for their competitive tactics and disproportionate levels of power. Regarded as one of the most significant legal challenges in modern history, this antitrust lawsuit can perhaps be seen as a key mark for administrations to start addressing big tech accountability.
Here, Amazon CEO Jeff Bezos acknowledged that Amazon may have used proprietary data to influence its own product decisions, prompting concerns regarding the e-commerce giant’s approach to competition. In a year where small business has taken the hardest hit, his scrutiny is well-deserved.
Amazon’s sellers have also reported unfair seller experiences as a result of pay cuts and monthly fees. Charlene Anderson, a 63-year-old woman who sells knitting and craft supplies on the platform, reported to TIME Magazine that she is forced to fork over US $39.99 per month in fees, on top of a 30% pay cut that is deducted from her total earnings each time she sells an item. During pandemic times, Anderson has likened this experience to “dictatorship” over Amazon’s internal marketplace.
In all, reports have accused Amazon of having “monopoly power over its third-party sellers, bullying its retail partners and improperly using third-party data to inform its strategy for selling self-made, private-label products on its marketplace”.
Criticism of Google, Facebook and Apple
In the fall of 2020, the US justice department also filed an antitrust lawsuit against Google, accusing the tech company of holding an illegal monopoly over online search and search advertising. In short, the case accuses the tech giant of unfairly hoarding access to the web through various business agreements that lock out any competition.
Small businesses, such as Yelp, have also accused Google of taking over their content and then listing it on their own pages. Subcommittee chairman David Cicilline has flagged this behaviour as “economically catastrophic”.
Facebook CEO Mark Zuckerberg was also criticised for his purchase of Instagram back in 2012. With documentation supporting the idea that Facebook’s acquisition was done to neutralize any potential competition between the two platforms, congressman Jerry Nadler referred to this act as “exactly the type of anticompetitive acquisition the antitrust laws were designed to prevent.”
Is Big Tech stifling competition, and therefore innovation?
The five major tech companies — Amazon, Apple, Alphabet, Facebook and Microsoft — have also faced major scrutiny within the last year for what many experts have perceived as “snatching up nascent rivals” and staving off any potential competition by acquiring their competitors.
According to data compiled by Bloomberg, the number of acquisitions by the five largest companies came at the fastest pace in June of 2020. In total, the Big Tech giants announced a whopping 27 deals — a 29% increase from those sealed in 2019. Notable examples include Facebook’s US $400 million acquisition of popular image provider Giphy, as well as Apple’s acquisition of Dark Sky, a well-known weather app.
In response to Big Tech’s accelerated buying in 2020, economists and lawmakers have begun to issue warnings about the likelihood for these companies to use their abundant cash flow to choke off competitors — and, in turn, increase market shares that are already high.
Furthermore, experts worry that by acquiring firms and mitigating overall competition, they are taking away potential rivals’ ability to grow and “start somewhere”, just as they once did.
Why should we be concerned?
In the end, the biggest beneficiary from the COVID-19 pandemic are the companies that are functioning by bringing retail, entertainment and information to our devices, to our fingertips and to us in our homes while we are under quarantine. In turn, this means that their biggest profits are currently being derived from our fears of leaving our homes, our new work situations and our cooperation with government directives.
Columnist Scott Galloway puts it nicely: “The government closes down the competition, restricts everyone to their homes and then sends consumers trillions in cash. How do they not come out of this with so much momentum that competitors never catch up?”
At the same time, advertising platforms such as Facebook and Google are largely dependent on our levels of online activity. The more search queries, clicks, likes, comments and messages we input into their platforms, the more information they can sap from us and sell to advertisers to target us. It should come as no surprise that in 2020, both YouTube and Facebook saw record highs in profit. Couple these factors with the fact that they are also helping to suppress new talent and innovation, and you have a recipe for long-term economic harm.
Galloway believes that the new Biden-Harris administration can help combat Big Tech tyranny by “committing to funding and political support for serious antitrust enforcement”. The series of legal actions we saw in 2020 may have sparked a new trajectory towards not only addressing the dangers of Big Tech, but also to restoring the competition and innovation our markets need.