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[ARTICLE] Covid-19 has made Europe’s technological dependence on the US clearer than ever
13 August 2020
EU flag with binary bits
[ARTICLE] What are Europe’s next moves on tech regulation?
13 August 2020

[ARTICLE] Is the Covid-19 pandemic a victory for big tech?

by Rachel Griffin

The Covid-19 pandemic has caused countless avoidable deaths and massive social disruption. It has also been catastrophic for the global economy, throwing most countries into deep recessions. This will have terrible human consequences, permanently damaging billions of people’s life chances and access to essential services. But this damage is not spread equally. Sectors like hospitality and entertainment, disproportionately made up of younger and lower-paid workers, will be the worst affected. For the tech industry, on the other hand – particularly for the small number of huge companies which dominate the sector – the crisis could be a major opportunity. 

The biggest tech companies already wielded huge power. They have long leveraged network effects to dominate markets and crush competition; they control key infrastructure and use their huge financial resources to wield significant political influence. As discussed in another of our blog posts, the reliance of governments around the world on a few huge companies for vital technological infrastructure undermines their digital sovereignty: their ability to act autonomously in the digital sphere. The European Court of Justice’s recent Schrems II decision is just the latest illustration of how difficult it is for the EU to effectively regulate its digital economy when it is almost entirely dependent on American tech companies. The case and its consequences are analysed in detail in another blog post from the Chair

As the pandemic made us even more dependent on digital technology, it has made the systemic importance and enormous power of the tech giants more apparent. For example, it rapidly became clear that no government could build an effective contact tracing app without the cooperation of Apple and Google, whose operating systems power 99% of the world’s smartphones. This meant they could dictate the apps’ design, taking essentially political choices about the balance between privacy and public health out of the hands of governments. 

But the pandemic and its economic fallout could also strengthen the tech giants even more. Tech is one of the few sectors to benefit from the crisis; but, as will be discussed below, it is overwhelmingly the biggest tech companies which are winning out, which will lead to even more market concentration. Some have also suggested the crisis will halt the previous worldwide trend towards stricter regulation in privacy, data protection, competition and other key areas for the tech industry – not only because governments have other more urgent concerns, but also because they and the public have a new appreciation for the value big tech provides. 

Yet in fact, the pandemic appears to have given new force to calls for regulation. The EU, in particular, seems more willing than ever to take action: Nicola Bilotta and Rupprecht Podszun both discuss the prospects for future EU regulation in their interviews for the Chair. Meanwhile, a potential future Democratic administration might be likely to take much more drastic action to regulate big tech in the US, especially from a competition perspective, as Randy Picker discusses in his interview. 

So far, the impact of the pandemic seems ambiguous: big tech will emerge from the crisis economically strengthened, but facing substantial public criticism and regulatory pressure. Whether regulators will be able to successfully curb their power remains to be seen. 

The crisis is big tech’s economic opportunity

While the pandemic and lockdown measures have been disastrous for most economic sectors, tech giants have been among the few winners. As Western economies went into meltdown, the share value of the US’ five biggest tech companies (Apple, Amazon, Google, Microsoft, and Facebook) soared. On the 20th July, rising stock prices added $13 billion to the fortune of Amazon CEO Jeff Bezos (who is worth more than most countries’ GDP) in a single day. The recent gains for the stock market as a whole, which have attracted skepticism, are in large part driven by this one sector. It’s not surprising: the short- and long-term economic consequences of the pandemic are generally highly advantageous to tech companies. 

As lockdown measures confined people to their homes and prompted a surge in remote working, demand for many of their services immediately shot up – not only obvious consumer-facing products like video calling and TV streaming, but also the cloud computing services that make up a substantial share of Amazon and Microsoft’s revenue. Analysts believe that even after lockdown measures are lifted, consumer habits will permanently shift towards digital services and online shopping.  

Tech giants aren’t entirely immune to the broader economic downturn that’s beginning, especially those that rely on advertising (Facebook’s short-term revenue has been significantly affected by a drop in ad spending). However, with huge cash reserves and market power, they are much better placed to weather the coming recession than their competitors. The industries most affected by the pandemic – traditional retail, hospitality, and entertainment – are those which were already suffering due to competition from the tech industry. Many large retailers with traditional business models have already gone under; as the big e-commerce platforms expand to fill the gap, those that remain will face ever more cut-throat competition. Advertising revenues have dropped across all platforms as businesses cut back spending, but when they ultimately rise again it’s likely that an even bigger share will go to online platforms, rather than the traditional media which were already losing revenues before the pandemic. Ultimately, the Covid-19 crisis will consolidate and accelerate the existing trends which already made big tech companies the world’s largest and most powerful corporations.

These aren’t just positive trends for the industry as a whole: it’s the very biggest companies who will come out on top. They have the financial power to weather short-term economic pain and expand quickly to take advantage of new opportunities. Smaller startups, on the other hand, have already been decimated. In turn, this benefits the tech giants even more, as they not only face less competition, but can snap up startups’ talented employees and copy their product ideas. 

To consolidate their market dominance and take advantage of the new opportunities opened up by economic disruption, all the big tech companies are currently expanding aggressively. Just within the last few months, Facebook purchased the animated gif platform Giphy and announced it would launch a startup venture capital fund; Microsoft bought three cloud computing businesses; Amazon purchased self-driving car company Zoox, with which it apparently plans to launch a new self-driving taxi service; and Apple bought several startups, including AI startup and Voysis, which builds speech recognition and digital assistant software. Facebook, in particular, has also been expanding its operations worldwide. It has recently made a $5.7 billion investment in Indian telecoms giant Reliance Jio (quickly followed by $4.5 billion from Google), invested an undisclosed sum in Indonesian ride-hailing and delivery company Gojek, and joined the 2Africa project to build a huge undersea cable circling Africa and increase internet capacity across the continent. 

Stock markets are betting that the tech giants will continue to grow, as are lenders. Amazon recently secured some of the lowest ever US borrowing costs (and has a long track record of using its near-limitless funding to undercut and crush competition). As competitors fail or cut spending, the economic crisis gives big tech a unique opportunity to swallow up ever more market share and dominate new industries. Even after a post-pandemic economic recovery – whenever that might be – their strengthened positions will be extremely difficult for competitors or regulators to challenge.

The demise of the ‘techlash’?

Before the emergence of Covid-19, the industry zeitgeist seemed very different. Big tech entered 2020 facing a ‘techlash’. A series of scandals around fake news and election interference led to continual bad press and frequent employee protests. Meanwhile, countries around the world had passed stricter regulations on everything from privacy and content moderation to employment rights and launched a number of major competition actions against the tech giants. 

When Covid-19 hit, it seemed like that might change. As countries went into lockdown, and many Western consumers found that social media, online shopping, and video calls were the only things making life bearable, many commentators started to ask whether the ‘techlash’ was over. For the business-friendly Telegraph, ‘The demise of anti-Big Tech hysteria would be worthy of celebration…our current crisis is seeing the promise of Big Tech fulfilled’. Wired was more concerned: ‘The pandemic does not make any of the complaints about the tech giants less valid…But the momentum for that reckoning doesn’t seem sustainable at a moment when, to prop up our diminished lives, we are desperately dependent on what they’ve built.’ In any case, many shared the view that issues like privacy and competition were no longer the political priority, and that consumers and regulators would have a new appreciation of the value big tech companies provide. 

Indeed, in the early days of the crisis, tech giants seized the opportunity to show they were stepping up to help fight the pandemic and gained some much-needed good press. As outlined in an earlier post from the Chair, social media companies took swift and decisive action to suppress misinformation about Covid-19 and disseminate official public health advice – even if these measures actually proved rather less effective than claimed. By April, the five biggest tech companies had pledged $1.25 billion in donations to support Covid-19 relief efforts, small businesses, and struggling news organisations. Meanwhile, in an acute health crisis, many people hoped big tech and big data could provide a solution: even well-known privacy advocates called to ‘give all my data to Google and the CDC’.

However, now the initial shock of the crisis has worn off and most countries are out of lockdown, it seems reports of the techlash’s demise have been exaggerated. Economic shutdowns forced a temporary pause of most competition actions and gave tech companies the opportunity to lobby for the postponement of new regulations such as the California Consumer Privacy Act. Now, though, this brief respite seems to be over, and the appetite for regulation doesn’t seem to have decreased. 

A wave of new competition investigations is being launched in the US and EU. The US Congress has just called four of the five biggest tech CEOs to testify in a major antitrust investigation, which may lead to new legislation tightening competition rules. Meanwhile, the EU is currently consulting on a range of new regulations and competition powers for the digital economy, as outlined in detail in another post from the Chair. In a recent speech, digital and competition commissioner Margrethe Vestager singled out big tech companies as a key target for regulation, arguing that the pandemic has highlighted the need for these essential services to be more closely regulated, and that large ‘gatekeeper’ platforms need to act more responsibly. 

When it comes to press coverage and public opinion, the tech giants haven’t fared much better. As discussed in detail in our ‘Infodemics’ dossier, social networks – particularly Facebook – have been harshly criticised for offering a platform to misinformation, hate speech, and voter suppression. Civil rights groups in the US have organised a growing Facebook boycott by major advertisers, calling for substantial reforms to its moderation systems, and the company was recently castigated for failing to take voter suppression and hate speech seriously by the independent civil rights auditors it hired in 2018. This public attention puts more pressure on legislators to strengthen regulation of online content: the EU’s forthcoming Digital Services Act is expected to include extensive new obligations for social media platforms. 

Other tech giants haven’t faced the same level of bad press (although lockdown measures did give new force to long-running criticisms of Amazon and the major gig economy platforms for their poor treatment of workers). However, there doesn’t seem to be much evidence for the idea that the pandemic has renewed public faith in the tech industry. A recent study by the Global Institute found that most people in France, Germany, the US, and the UK don’t think that big tech companies either do or should play a big role in tackling the pandemic. It also found that social media, in particular, are generally perceived as having a negative impact on society. 

Is the pandemic a victory for big tech?

The huge social and economic disruption caused by Covid-19 has accelerated existing trends for the tech industry, rather than creating entirely new dynamics. Economically, this is unquestionably a victory. As tech journalist Will Oremus commented, ‘When you control the software platforms that dominate online communication, productivity, and commerce, you can’t lose.’ With their dominant market positions and huge resources, they are uniquely well placed to profit from the crisis, while struggling competitors go under.

However, the crisis also seems to be strengthening existing political trends towards stronger regulation of the tech industry. Regulators who were already concerned about the enormous power and market concentration of the tech industry have only become more so. Meanwhile, as support for the Black Lives Matter movement surges, activists who have long criticised tech giants for worsening social inequalities are finding the public newly receptive to their arguments. In contrast to the ‘techlash is over’ narrative, the prevailing mood is better summed up by a recent statement from Margrethe Vestager, the EU’s digital and competition commissioner: ‘We see all the benefits that come with digital technologies. But the downsides are clearer now too…if anyone doubted the need to make sure that we have the right regulatory framework on technology, they must now be convinced that you cannot have a laissez-faire approach to something that’s so involved in everything we do.’

Though the pandemic has given new force to the arguments of US ‘antitrust hawks’ and Congress is considering new legislation, in the current American political climate, there is little immediate prospect of wider regulatory reform. It is rather in the EU that we are likely to see the most far-reaching regulatory response. The new Commission already planned to make digital policy a key focus before the pandemic and has now stated that ‘the twin green and digital transitions’ will be the priorities for its coronavirus recovery programmes. As outlined in detail in another of our blog posts, it is planning new initiatives and regulations in competition law, taxation of digital services, and other key areas such as AI.

If the pandemic and its economic fallout drive the EU and other countries to successfully step up regulation of big tech companies, strengthen competition and make the industry more democratically accountable, their short-term economic victory may not last long. But taking on these enormous and politically influential corporations is not easy. At this point, their scale makes them near-impossible to compete with, and past regulatory reforms like GDPR have proved difficult to enforce in practice. The EU’s ability to regulate the US tech giants is also hampered by its dependence on them for key services, and lack of successful domestic tech companies which could offer a genuine alternative. The pandemic has strengthened arguments that big tech companies are too powerful and need to be restrained, but whether this will be achieved remains to be seen. 

Rachel Griffin is a master’s student in public policy at Sciences Po Paris and the Hertie School of Governance in Berlin, and a research assistant at the Digital, Governance and Sovereignty Chair