Can Big Tech Keep Adapting To Survive?

Can Big Tech Keep Adapting To Survive?
Carl Hazeley

over 2 years ago4 mins

  • The lines between ecommerce and advertising are blurring, stoking opportunities and threats for retailers, advertisers, and social media platforms.

  • The rise of the creator economy has created a new marketing channel, but existing social media platforms need to adapt or risk obsolescence.

  • Cloud computing is expected to keep growing apace, with today’s biggest players reaping the rewards.

  • Regulation and the rise of the decentralized web risks disrupting the biggest internet companies if they don’t innovate and adapt.

The lines between ecommerce and advertising are blurring, stoking opportunities and threats for retailers, advertisers, and social media platforms.

The rise of the creator economy has created a new marketing channel, but existing social media platforms need to adapt or risk obsolescence.

Cloud computing is expected to keep growing apace, with today’s biggest players reaping the rewards.

Regulation and the rise of the decentralized web risks disrupting the biggest internet companies if they don’t innovate and adapt.

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Big Tech has held the world in the palm of its hand for the last 20 years. But if it wants to keep customers from slipping through its fingers, the sector’s going to need to adapt: Goldman Sachs just shared some of the themes it thinks will impact US internet stocks going forward, and I’d like to look at which companies are best placed to handle the transition.

Theme #1: The blurred line between ecommerce and advertising

Between Amazon’s video ads, Facebook, Instagram, and Pinterest’s social shopping, and the growing ad revenue generated by the likes of Shopify and Google Shopping, the gap between pure ecommerce and pure advertising has never been smaller.

The winners will likely come down to which companies can create a virtuous circle of growth: that is, attract the most prospective customers and give them the widest product offerings to meet their needs.

Relevant stocks: Amazon, Facebook, Alphabet, Pinterest, Snapchat.

Amazon’s arguably best-positioned for this transition, given that it has huge retail and advertising businesses already, while Google’s massive ad business makes it tough to bet against. Facebook already has its users’ attention, but perhaps needs to improve its marketplace product liquidity. Compared to those giants, Pinterest and Snapchat potentially have the biggest challenges to overcome.

US social commerce buyers, millions.
US social commerce buyers, millions.

Theme #2: The rise of influencer marketing

Creator-focused social media networks like TikTok and OnlyFans – which have been driven by theme #1 – are responsible for the newfangled creator economy. Unlike more traditional social media networks, they come with ways to monetize content as an “influencer”, which has created a new marketing channel for brands.

US influencer marketing spend, $ billions.
US influencer marketing spend, $ billions.

Platforms embracing this shift are on a winning streak, but there’s a cost: they have to share more of their income with their creators.

Relevant stocks: Facebook, Alphabet, Pinterest, Snapchat.

Google-owned YouTube’s sheer scale puts it in a good position to maintain its relevance no matter what happens, but this theme is both an opportunity and a risk to more traditional social media companies. They’ll likely need to innovate and become more like the competition or risk losing users over time. Facebook’s track record of mimicking competitor products suggests it’ll manage that transition well.

Theme #3: The growth of cloud computing

Cloud computing is no longer optional for enterprise customers: between increases in digital spending and post-pandemic shifts in IT budgets, we’ve passed the tipping point of adoption in the industry. The sector should grow at an attractive clip in the coming months and years, with growth already having come in higher than expected over the last year.

Gartner public cloud market size, $ billions
Gartner public cloud market size, $ billions

What’s more, the big players all appear to be profitable despite offering competitive pricing at one point or another. Notably, cloud is Amazon’s profit engine, with the segment earning the firm mid-20% to 30% margins at an almost $60 billion revenue run rate.

Relevant stocks: Amazon, Alphabet.

As the industry matures over the next three to five years, the largest players – which includes Amazon, Google, and Microsoft (despite not being an internet company in the typical sense) – should benefit from a disproportionate share of the growth and generate high and rising profit margins.

Theme #4: Regulation and the rise of the decentralized web

Increased government focus on the largest Big Tech players has been a theme of the last few years, and it could play out in a number of ways: more disruptive headlines from new investigations, fines, and rules, rising costs to comply with tougher rules, and regulatory intervention in (read: blocking of) Big Tech acquisitions. The latter could drive a renewed focus on internal research and development.

The ongoing wildcard, meanwhile, is the forced breakup of the tech giants. That disruption, while major, could accelerate the next wave of computing – web 3.0, or the decentralized web.

Evolution of decentralized web
Evolution of decentralized web

The global internet industry is on the cusp of a new innovation curve, moving from the current paradigm (from desktop to mobile computing and from local to cloud storage) to one which is decentralized, less globally scaled, and more locally focused.

A decentralized web – version 3.0 – will likely give users more control over their data, be more niche in its applications (it’s unlikely there’ll be as many super-app type companies), leverage individual creators more, create new and more direct distribution channels, and offer greater flexibility on payments.

Relevant stocks: Facebook, Alphabet, Amazon, other large established players.

As part of most people’s current internet infrastructure, Facebook, Google, and Amazon have the biggest opportunity to benefit from the shifting landscape. By that same token, they’re most at risk of being left behind if they fail to innovate. Amazon’s track record of facing – if not causing – disruption suggests it’ll do well out of web 3.0, while Facebook will probably keep pace too, given its influencer platform and cache of user data. Of the three, Alphabet is most at risk, but I wouldn’t necessarily bet against it either…

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