Big tech’s year of rough seas has taught us a lesson in naming winners and losers
IF 2022 has taught us anything, it has shown us how there are no clear business winners or losers from the pandemic. The rough year for big tech is a case in point.
Although many of the Faang (Meta neé Facebook, Apple, Amazon, Netflix and Alphabet) cashed in on the various lockdowns, this year has sparked a dreadful change of tune for some of the world’s biggest companies.
Silicon Valley has had to grapple with supply chain woes, and then the cost of living crisis, tightening consumer and commercial spend, as well as a war in Ukraine coupled with a wider economic downturn (and subsequent tech sell off). The fateful mix has meant in the past few months alone, Meta, Snap and Amazon have all made thousands of staff redundant, cutting teams and pulling major projects.
Twitter also famously gained a new owner, Elon Musk, who is on a quest to completely reinvent the social media firm, cutting half of its headcount in the process.
From a video streaming perspective, the year has been equally uncertain, with Netflix having one of the famous tumbles of this year, raising question marks for the entire sector as its share price dropped to as low as $162.71 down from its $690 in 2021.
As we head into 2023 the general consensus is that firms will need to tighten their belts and go back to basics. Tech analyst at PP Foresight Paolo Pescatore called this a much-needed “reality check”, with companies pausing bigger, more expensive projects, and “going back to the drawing board”.
Meta lost over $9bn to its Reality Labs bets on AR/VR technology in the first three quarters of this year, with even Facebook chief Mark Zuckerberg conceding that he made a mistake in going full force with the metaverse. Snap and Amazon have also reportedly culled their innovation teams in a round of brutal cuts.
Victoria Scholar of Interactive Investor told City A.M.: “Tech companies will need to focus on managing costs with efficiency programmes and maintaining sales where possible. This may mean that resources are streamlined towards the more lucrative business segments, with less room for spending on ‘moon shoot’ ideas.”
However, perhaps all is not lost for innovation. One insider at a Silicon Valley social media firms told City A.M. there are concerns that all this newly available talent, including highly talented AI designers and developers, could band together to work on a new project or rival.
Climbing interest rates and a slowing economy are likely to make start-up fundraising difficult but the social media space is famously fickle. Relatively new players like Tiktok have been able to gain traction quickly.
Although Pescatore agreed that there are currently too many companies chasing too few dollars, “the concentration of Silicon Valley brings people together”, and wouldn’t rule out a new player to challenge the status quo.
Squeezed ad budgets is the elephant in the room, and has been a point of contention for the likes of Google and Meta month after month – meaning revenue streams continue to fall short of expectations.
Pescatore said the likes of Tiktok, which is owned by Bytedance, have been clever in this way – exploring opportunities in live sports and experimenting with live shopping, and other formats that may appeal to Gen Z and ultimately get advertisers in.
Equally, Apple continues to be an outlier, whose privacy changes have actually further hurt advertising budgets – by making more difficult for app tracking on users by giving them a pop-up to opt out (thereby reducing ads).
Even the so-called winners of the pandemic cannot hide from the regulatory obstacles popping up. The EU passed its Digital Markets Act and Digital Services Act in October and the UK continues to push forward with its online safety bill.
For Pescatore, these are “major headaches” but social media analyst Matt Navarra said meeting regulatory standards will need to be a bigger part of how companies operate.
“They (regulators) will be keen to show these companies that they aren’t just here as guidelines and rules, but that these regulations will have implications,” Navarra told City A.M.
And the coming year could be a turning point as regulators flex their muscles. So whether Brussels goes on a full defensive, or if Meta and Twitter alumni band together to build something, one thing seems for certain: it’s going to be a bumpy ride.