How Shall Tech Companies Navigate The Coronavirus Pandemic16 Apr 2020
- The coronavirus imposes short-term earning crisis
- The global pandemic creates long-term investment opportunities as governments, corporations and individuals start to adapt themselves to be more robust against similar situations
- Such adaptation leads to long-term changings affecting how businesses are operated worldly, in a way that we didn’t see in the past decade
- Technology companies shall consider and invest in these trends to remain competitive, rather than being fully defensive
The current on-going coronavirus pandemic is creating a crisis for a significant slump in spending in specific areas, such as travel. Those businesses relying on people to travel like airlines and hotel chains suffer the most. Luckily, technology firms stand in an advantageous position as software development is completely operational while employees are working from home.
I wrote this article as I really wanted to share some thoughts on the event. From my point of view, the current health-care disaster is both a short-term crisis and long-term opportunity for tech firms. Companies shall see how they can adapt their business plan to navigate the pandemic.
Short-term crisis: earning slump
Most of the technology companies will be directly hit by the drop in spending. It happens on the consumer side and also on the corporate side.
In the economic downturn, as consumers are spending less money, income will be damaged. People are less likely to upgrade their smartphones just because the new one has a better camera. The logic will be the same for other computer hardware. For internet companies depending on advertisement earnings, as corporations start to correct their budget for ads, the unit price for an ad presence is likely to drop.
How shall companies endure this earning crisis? Although most of the big firms already have knowledge on how to deal with it since the 2008 financial crisis. An obvious plan is to cut back investment, hire fewer people and drop some non-performing projects, just like a usual crisis preparing strategy.
However, one concern is that such a standard treatment is going to largely reduce the competitiveness of the business. The growth of the business is likely to stay slow until the economy fully recovers to its original shape.
But why even do we assume the economy or peoples’ behavior will return to the same point before the crisis? Isn’t the global pandemic is shifting the world to a new value system that we didn’t experience in the recent decade?
During this period, if a technology company is just trying to cut investment to protect its core business, then the worst scenario is both missing the opportunities created by the pandemic and failing to protect its core business. It’s simply because the rule of this game is changed.
In contrast, technology companies that ride this long-term trend can be more competitive in the future.
Why do I think the virus crisis is short-term
Today is Apr 16th. The death toll of coronavirus is around 130K globally. From this number, it’s reasonable to believe that the current virus is unlikely to become another Spanish flu, which killed 17-100 million people. The most similar recent virus shall be the swine flu that began in November 2018. In August 2019, WHO declares the end of the epidemic. I believe the current virus epidemic will also be a short-term one, which is going to last for a year.
The current on-going crisis is not and shall not be compared to the 2008 financial crisis. The 2008 crisis is triggered by the financial system and hits the wall street. The current economic crisis is triggered by consumer spending and hits the main street.
Consumer spending is going to recover at some point, although not 100 percent. The current shutdown of part of the cities is largely due to the fact that the government doesn’t know a better way to deal with the virus. A shutdown is the safest bet but isn’t the best. As more experience and data accumulated in this process, the government is going to figure out a more balanced way to keep both people and the economy safe. The domestic spending will drastically recover once the government starts to lift the restriction.
Note that the recovery of spending may not lead to immediate economic recovery. The latter has a lot of things to do with debt.
Long-term opportunity: prepare for a new world
Different from the swine flu, which was somehow covered by the shadow of the 2008 financial crisis, the coronavirus literally crashed the global economy. After this crisis, almost for certain, countries, local governments, corporations, and individuals will raise the question: why are we so fragile when the virus hits? How shall we change in order to be not so fragile during the next pandemic?
Unlike the Spanish flu 100 years ago, thanks to the internet, not all businesses stop when participating in social distancing. So technology has already done a good job. Next, governments and corporations will seek more help from the technology side to make them more robust when the next wave of virus hits. I believe this will be a long-term trend for the next 10 years, which is also a vast opportunity for tech companies.
Here, I list some ideas in my mind, but I don’t think this is an exhausting list. And maybe not all of them are correct.
Deglobalization In this pandemic, we see countries after countries shut down their borders just to avoid new virus being imported. As people started to see how their job can be done without traveling, they will also travel less in the future. On the other side, companies will learn the benefits of having a local partnership so that the supply chain remains intact when another country is in crisis. Countries may impose travel restrictions much more often when a hint of disease spreading is found in another nation.
De-urbanization Health care is important for life quality. As we see during the coronavirus crisis, too much urbanization means health care will not be available when you need it urgently. It’s reasonable to believe more people will consider moving to suburban cities if they can also work from there and collaborate with people in another city.
Distributed branch office Instead of having a concentrated HQ in a super-crowdy mega-city, companies will be more robust if they build branch offices in different cities. With the help of emerging technologies in the future, workers will feel more comfortable while collaborating in different locations.
Remote working and collaboration One obvious trend is that companies will invest in or buy technologies that make sure the productivity of the company remains intact even when the employees can’t go to the office.
Online order for food and grocery With the increasing amount of restaurants begin offering food delivery, people now can enjoy more variations of food while staying home. And people will get used to it, same for grocery.
Virtual shopping, social gathering, and everything Retail sales crashed during the crisis. Bars closed. Movie theater can’t let people in. How can they adapt their businesses so that the next crisis won’t kill them again? Well, they can offer people a virtual space to do the same thing. A virtual bar sounds crazy, but a lot of people go to a bar, not for the drink, but a talk with someone else. By building a similar space with virtual reality, they can do the same thing. And they will pay for a monthly membership in a virtual bar.
Is AI boom over?
It depends on the application. In an economic downturn, corporations will be even more eager to cut operational costs. So AIs that promote automation such as self-driving and chatting bots are still promising.
The coronavirus pandemic will be remembered by the history (at least by Wikipedia). Fortunately, the tech industry is the one that suffers the least in this crisis. Rather than cutting back everything and be excessive defensive, tech companies shall consider the long-term trends and opportunities created by the crisis.