Will Big Tech’s run continue in 2021?

Big tech were the saviours of 2020, you could argue. Despite the unusual circumstances of this year, they enabled most of us to stay connected, entertained, and mostly sane. They were also the driving force behind the exceptional performance of the S&P 500: indeed, while the US benchmark index has advanced 14 per cent overall this year, if you strip out the information technology sector, that figure falls back to 7 per cent. In fact, the S&P 500 has never been so concentrated: Apple (US:AAPL), Microsoft (US:MSFT), Facebook (US:FB) and Amazon (US:AMZN) together now account for more than a fifth of the index – and it is perhaps not surprising, given that Apple this year became the first American company with a market value that exceeded $2 trillion. 

The benchmark’s concentration in Silicon Valley was advantageous this year. But now if big tech sneezes, the rest of the market catches a cold. And while they have had a stellar 2020, there are underlying issues that are creeping out of the shadows and are headed towards the spotlight in 2021. 

The slowdown

Big Tech bagged great growth figures this year. In the first quarter, following the outbreak of coronavirus in much of the West, Microsoft’s revenues at its cloud computing business, Azure, soared by more than half. Amazon’s cloud revenues jumped 22 per cent in the three months to end June. At Netflix (US:NFLX), the streaming giant posted a record 15.8m new net adds to its subscription service. But it does not look likely that all of these companies will be able to sustain this pace of growth. This has already been evidenced at Netflix, where management has warned of a slowdown ahead. Even 2020’s stock darling Zoom Video Communications (US:ZM) recently flagged that it expects its revenue growth to slow next year, news of which sent its shares diving 15 per cent. 

But that is not to say there are no markets in which these companies can still aspire to grow. Amazon, for example, is launching a new cloud gaming service to sit alongside its other consumer services in music and video streaming. Apple is pivoting itself to focus more on services, pedalling its TV and arcade games products. Even Facebook has introduced a free gaming service. Indeed, many of the big tech companies appear to have cottoned on to the same idea: dominance in consumer services. But here they are competing in an already saturated market, vying against deep-pocketed peers for the top spot. 

The regulators 

While big tech may have been Wall Street’s saviours this year, they were not heralded as saints on Capitol Hill. Indeed, on both sides of the pond, the tech titans faced greater regulatory scrutiny than ever before. Stateside, a Congressional antitrust investigation – which involved a fiery hearing where the chief executives of Facebook, Apple, Amazon and Alphabet (US:GOOGL) were all called to testify – culminated in a report that called for their break-up. In October, the Department of Justice filed an antitrust lawsuit against Alphabet, which formally charged it of monopolistic behaviour over the way it uses its distribution, especially on mobile devices, to boost its presence in both search and search advertising. In Europe, Microsoft faces an antitrust complaint that was filed against it by Slack, which is now being bought by one of Satya Nadella’s key rivals, Salesforce (CRM). 

Outside of structural dominance in their respective markets, some of these tech groups have also landed in hot water over their role in the publication of harmful content on their platforms. The reformation of Section 230, a US law that regulates how internet companies are held responsible for third-party material on their platforms, has attracted cross-party support in Washington.

These issues will be at the centre of discourse around Big Tech next year, and probably beyond. Antitrust cases can press on for years, and Google is unlikely to give in quickly to the Department of Justice. Meanwhile in the UK, the Competition and Markets Authority (CMA) has created a Digital Markets Unit, which it expects will start work next April. Its taskforce has already suggested that big tech companies such as Google and Facebook could be liable for fines worth up to 10 per cent of their global revenue if they violate its proposed code of conduct. 

Much of the discourse around big tech in the UK places greater emphasis on proper taxation. The UK government tried to implement a digital services tax this year – although Amazon eventually passed it on to third-party sellers on its platform, and Google hiked up its advertiser fees. The question remains then: how should these big corporations pay taxes in the foreign territories they operate in? Dame Margaret Hodge, Labour MP for Barking and the chairwoman of the All Party Parliamentary Group on Anti-Corruption and Responsible Tax, offers her thoughts above.