Earnings season is a deluge of data, to be sure, but after a few weeks of conference calls, press releases and supplemental slide decks, some common themes emerge.
For the tech giants, we are getting a sense of just how high the walled gardens they’ve crafted over decades are growing, Jim McCarthy, president at i2c, told Karen Webster — gaining scale and reach among consumers and creating ecosystems along the way.
Notwithstanding the saber rattling on Capitol Hill.
At a high level, he said the comments and the double-digit surges in viewership, downloads, advertising revenues and payments are not especially surprising.
We’re two decades past the dot-com bubble. But the connected economy, he said, still has a long growth period ahead. The infant, he said by way of illustration, has just entered the toddler stage.
The pandemic may hasten the toddler’s development into adolescence and beyond. After all, McCarthy said, COVID-19 has just reinforced the great digital shift — it altered behaviors that were already in the process of, well, altering, for those that were early adopters. For those that were hesitant to get online, well, the pandemic forced them to pivot.
For Big Tech, then, where, in McCarthy’s words, “the year-over-year comparisons are just shocking — but explainable,” consumers are voting with their pocketbooks and their eyeballs. (And their buy buttons.)
The Networks — And The Walled Gardens
To see just how firmly the digital shift has been entrenched, McCarthy pointed to the payment schemes such as Visa and Mastercard, which have seen double-digit debit growth, and a bit of green shoots in credit as economies have been reopening. Tailwinds should appear when business travel rebounds and cross-border commerce picks up steam.
But: drill down a bit, and Apple’s walled garden is different from Google’s which is different from WeChat or Alipay. The value propositions are a bit different, and of course, for WeChat the focus has been on China, where other Big Tech firms might be global in scope (and for now, Apple, in another example, is tethered to hardware sales).
“They still have the same inherent qualities of reinforcing stickiness through a wide array and assortment of value added services, some of which have been cobbled together through acquisitions over the years — and which, end to end, give a continuum of connected offerings that keep the consumer engaged,” he said.
The rising tide is indeed lifting all boats, when one considers even the relatively inconsequential (in terms of moving the needle for revenues) segments housed within, say, Google. YouTube, for example, with its ad platform and its bid to craft “shoppable” experiences for its consumers, is expected to log as much revenue this year as Netflix.
Eventually those heady comps, said McCarthy, will be tough to lap, tough to improve upon. But the YouTube surge shows a bit of how Big Tech can evolve, where, in this case, “search to check out” (at the physical point of sale) now has data and mobile and wallets in place to, ultimately, improve purchase behavior.
“Google [is] in the driver’s seat when you layer on those ancillary services like YouTube,” said McCarthy. “It’s a great advertising engine, but why not pull it all the way through the entire journey?”
Beyond the consumer engagement — platforms are two-sided markets, after all — Big Tech firms want to secure the supply side of the equation.
That would be the merchants, said McCarthy. Merchants have more choice than they’ve ever had before, and, as McCarthy said, with the advent of new payment rails (“they look or feel more like Visa or Mastercard in terms of the way they operate,” he said) and real-time payments and buy now, pay later (BNPL) options will create a landscape more competitive for merchants.
Crypto On The Horizon?
The buzz on everyone’s lips may surround crypto — and depending on where you looked, it either was in evidence during earnings season (PayPal is linking with Coinbase, for example), or muted (a few shout-outs on the payment networks’ commentary and Big Tech’s).
“I’m still a big believer that there’s a lot of practical use cases for tokens, in particular and crypto to a lesser degree,” said McCarthy.
Over the long haul, he said, stablecoins and some combination of crypto may hold sway.
The stage has already been set for a wider embrace of tokenization, said McCarthy, as Apple Pay and Google Pay effectively don’t exist without tokenization (though decoupled from funding instruments).
The Dark Horse And The DC Effect
None of this is to say that the path is only going to be smooth for Big Tech, said McCarthy. There will be winners and losers. And a firm like Facebook may face more challenges than, say, a WeChat. McCarthy told Webster that Facebook may be a relative underperformer because it has not been able to define itself as a clear commerce play (remember Facebook Credits? And Diem, formerly Libra, still has yet to get off the ground).
But the conventional wisdom that the marquee names in tech will suffer at the hands of regulators, and lawmakers, that these firms wield too much power and may be split up, may be just that — conventional wisdom, said McCarthy.
“When I try to square how consumers and merchants are choosing sides, versus what the D.C. narrative is, I would say consumers aren’t that concerned about this stuff,” he maintained.
So long as there is proper disclosure, he said, individuals are willing to trade information for, say, access to email, search and payments functionality. Google, after all, has been able to maintain dominant market share in the face of huge fines in the European Union, and efforts to create (arguably) a more level playing field.
The efforts to change the market dynamics, he said, equate to mere speed bumps. Consumers and merchants, ultimately, will choose what helps them execute commerce in a way that is faster and safer, and cheaper as data laws continue to evolve.
Markets, in the end, are smarter than regulators, said McCarthy. And Big Tech, and its platforms, he said, have evolved to take advantage of the digital shift and create new experiences for businesses and consumers.
Necessity, as they say, is the mother of invention — and invention might be the mother of Big Tech’s walled gardens.
As McCarthy told Webster, “If you didn’t have a digital capability before, you certainly better have it now — or you’re going to have trouble.”
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