If a tree falls in a forest and no one is around to hear it, does it make a sound? For the past 20 years, each traditional retail enterprise “tree” chopped down by digital innovation has hardly made a peep. Undoubtedly, some reverberated into an echo that ominously spoke of a completely digital future, but for many, those times felt distant. In 2018, Forbes decried the retail apocalypse: “Let’s be clear. Physical retail is far from dead. E-commerce is not eating the world. Every mall is not closing. And many of the brands we all know and love are likely to be around for a long time.”
It wasn’t until April of 2019 that the Commerce Department reported online shopping had overtaken retail sales. Even then, the fact that over two decades “‘clicks’ had slowly been eating up market share” was dismissed when adding in brick and mortar sales in categories such as auto and restaurants. A year later, every mall is closed, cars are being used sparingly, and restaurants are fighting tooth and nail to make ends meet after just a month of lockdown.
Digital Companies Are The Ones Left Standing
Those initial ‘clicks’ were perhaps the first reverberation of what was to come. While no one could have predicted the cataclysmic impacts of the coronavirus pandemic, whacking away at the remaining brick and mortar categories and leaving a disparaging field in which few have been left standing – there were plenty of signs of what the market would look like. As tech companies slowly but surely took stronger footing, traditional industries either adapted or withered away. Amid the resounding thud of the physical world’s halt, the clearing of the “forest” is finally allowing us to observe a unique pattern. The trees that remain standing, taller than ever, all have one thing in common: they are digital enterprises.
The landscape over the course of the past twenty years has been marked by big digital giants, such as Microsoft, Amazon, Apple, Google, and Facebook, innovating at a speed traditional brick and mortar simply couldn’t compete with, all while taking the lion’s share of the market. The decade-long stock market bull rally driven by companies that were born into the digital world suffered briefly as the markets sought to gather where the chips would fall but quickly found footing once it became clearer that the trend towards digitization will, in fact, accelerate faster than anyone predicted as a result of the current crisis.
Brief Case Studies in Digitization
It’s not the first time we write about how digitization will have an overwhelming impact on market share. Earlier this year, we made the case that financial advisory revenue would grow from $57 billion today to $200 billion by 2030, due to the automation and digitization of the wealth management industry. Recent developments seem to have accelerated the timeline from decades to years. Big digital companies’ ability to grow their revenues and earnings despite the crisis is a great case in point of the acceleration towards a fully-integrated digital world.
What Do Microsoft, Apple, Amazon, Google, and Facebook all have in common?
Brick and mortar retail was already dying because of Amazon. Newspapers and traditional media were rapidly losing market share due to Google and Facebook. Even Netflix was already killing cable. Why? Since their inception, digital giants have been offering integrated, frictionless, digital products, and services such as networking, communications, entertainment, and online-shopping that ease the lives of Americans. Now, they have become ‘essential’ services as people strive to live remotely.
For instance, Microsoft reported that the coronavirus has “minimal net impact on total company revenue.” Alphabet, Google’s parent company reported that steep drops in ad revenue were beginning to even out. In a similar fashion, Amazon’s 1st quarter revenues jumped 26% year over year led by its cloud business which grew 33% during the same period. The Jeff Bezos-led company added 100,000 warehouse workers to his employee roster during April and Mark Zuckerberg declared messaging and video calling traffic on the Facebook platform were off the charts. In fact, Facebook’s first-quarter revenues were up 18% year over year despite ad spending suffering significantly in March.
Satya Nadella, Microsoft’s CEO, framed the situation most accurately, “As COVID-19 impacts every aspect of our work and life, we have seen 2 years’ worth of digital transformation in two months.”
In the short term, very few companies are immune to the virus, the same way that no tree is immune to a forest fire. But the resiliency and adaptation of companies born into the digital world to a frozen physical world should work in their favor as digital adoption accelerates at warp speed. While the global economy is facing the worst ‘forest fire’ it’s seen in decades, the New York Times reports “business at the biggest technology companies is holding steady — even thriving.”
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