COVID-19's Impact on Tech Spending in 2020

The tech industry has been both hero and victim during these extraordinary times. Teleconferencing and office communications companies have made working from home a practical prospect, saving scores of jobs.

COVID-19's Impact on Tech Spending in 2020

The COVID-19 pandemic’s impact on society has been on a scale that has not been seen for generations. The numbers of deaths as a result of the virus are tragic enough, numbering in the the hundreds of thousands, but almost every single person on the planet has felt the impact in some way, shape or form. Business and employment have been among those areas of life shaken the hardest, with entire industries left pondering their future.

The tech industry has been both hero and victim during these extraordinary times. Teleconferencing and office communications companies have made working from home a practical prospect, saving scores of jobs. However, the industry has not been immune from the impact, especially in areas where it overlaps with other industries. This will radically change spending on tech for the rest of 2020, so let’s take a look at what is happening and likely to happen in future.

Supply and demand

You might think that, being largely based on software and the internet, the tech industry’s supply chain would be largely safe from the ravages of COVID-19. After all, so long as there is still electricity and an internet connection, it should still be possible for tech companies to keep working, right? Well, the fact that China was the first country to be significantly infected with COVID-19 and the fact that the government’s response was so dramatic had what might be the most serious impact on the tech world.

The reason is simple: the overwhelming majority of computer hardware comes from Chinese factories since the low cost of labour and raw materials make the prices unbeatably cheap. Replacing parts with US-made alternatives wasn’t an option because the prices are substantially higher. This rapidly led to a parts shortage in the western markets where they are needed most.

However, where spare parts and new machines were not required, the tech industry did indeed see growth. There was a massive spike in demand for software solutions to the new problems COVID-19 had created - namely, the sudden requirement for almost everyone to work from home. Zoom, Slack, Zoho Remotely, Microsoft Office365 and others saw dramatic increases in their sales and users. Slack alone reported a 67 per cent year-on-year increase in total revenue for Q1 2020!

The established names can’t rest on their laurels just yet as other players want a piece of their very profitable pie. For example, Alibaba has announced that they will be investing about US$28 billion over three years in Alibaba Cloud, their own video conferencing and live streaming service.

Tech in the travel industry

The tech industry has its fingers in many pies, making it more challenging to accurately predict exactly how it will be impacted by COVID-19 in the longer term. For example, while communications tech companies are currently on a high, those involved in travel, tourism and entertainment are not.

Many countries, including Thailand, have outright banned international arrivals, hotels have been ordered to remain closed and major events and festivals have been cancelled. This affects companies like Expedia Group, AirBnB, and other tech-based travel companies, most of which have seen mass cancellations and, with continued uncertainty on when travel bans will be lifted, few new bookings.

Investments in the tech side of the travel business will likely be minimal until income levels have returned to somewhere close to pre-COVID levels. Even then, with the ever-present threat of the virus returning next winter, committing to expensive tech upgrades and innovations will likely not be a priority. As an example, while AirBnB has received US$1 billion in debt and equity investment, they have also laid off 25 per cent of their workforce in order to cut costs, with those left being the people directly related to supporting home-sharing.

Tech in e-commerce

Tech companies involved in e-commerce, such as Amazon and Lazada, are having their own problems. Amazon, in particular, has something of a catch-22 to contend with. The crisis has brought a spike in online shopping among those in self-quarantine, resulting in almost double the number of fresh orders each month, but their fulfilment centres require human staff. Being prone to COVID-19 and feeling that the company is not looking out for them by instigating stringent measures to minimize risks, staff at many of the company’s fulfilment centres have had strikes and walk-outs.

This is the more serious end of the problem, but staff shortages have impacted other tech-based retail companies. UK-based online grocer Ocado has had to warn their customers that the “exceptionally high demand” the virus has created for their services has created a backlog of orders that they are unable to fill.

On the other hand, it’s worth mentioning that the challenges this sudden surge in demand has created have been met by innovation. For example, leading food delivery apps in China have developed new services to help minimize the risk of infection from (and of) delivery drivers.

Thinking more long-term, the response to these supply chain problems has been to increase investment in automation. An estimated 55 per cent of companies are now investing in warehouse automation, with 40 per cent looking at cloud logistics and even cutting-edge options like autonomous vehicles, fulfilment robots, 3D printing and delivery drones getting more attention.

Tech in finance

With physical banks closed, the world of personal finance has been turned upside-down by COVID-19. Fintech apps have seen a 72 per cent increase in use in Europe as people adapt to lockdowns. Some companies have also formed unlikely partnerships in order to further support this surge in online banking, such as Microsoft and Plaid setting up a new service to allow customers to import their financial accounts directly into Excel.

Interestingly, it’s not only banking apps that have seen a spike in users. As people seek some kind of financial stability in these uncertain times, gold-purchasing app Glint Pay have seen their traffic increase by over 700 per cent in a week.

While some seek the stability of gold, others are gambling on less-certain products. Several cryptocurrencies and platforms have taken the bold step to launch now, with the support of venture capital firms. Whether this shift to using online banking and finance services or the increased adoption of cryptocurrency will continue into the post-COVID world remains to be seen.

Tech in entertainment

The entertainments industry is famously recession proof - no matter how hard-up they are, people will always crave distraction and amusement. The same goes for the COVID crisis; arguably more so, in fact. Whether they’re unemployed or not, billions of people are stuck at home, without the option to amuse themselves outdoors.

In response, spending on video games has jumped by over a third in a month. Gaming has even received praise from the World Health Organization as a good way of keeping entertained while minimising the spread of COVID-19, despite the fact that they had previously warned of an impending pandemic of gaming addition. Meanwhile, Netflix increased their subscribership by a similar percentage, effectively securing their position as the world’s leading streaming service. Of course, Netflix in particular will eventually have a supply problem of their own as the production of new movies and TV shows has been mostly stopped.

Lend a hand

In this time of global hardship, tech companies have taken some of the biggest steps to support others. Special discounts, free upgrades and expansions of service and even investments of money and manpower into finding a cure for COVID-19 have been all over the news. However, more is likely to be needed.

With the sudden change in almost everyone’s lifestyle has given some areas of tech a big win, the industry will not be able to stand alone in a post-COVID world. As illustrated by the impact of the travel bans, it is a sector that is heavily impacted by the fates of other industries. If no one travels, there can be no travel tech companies. The same goes for e-commerce - how can tech companies like Grab, Foodpanda and others provide food delivery if all of their client restaurants have closed?

At the same time, the tech industry has its own problems. The shortage of hardware is undoubtedly the biggest. However, the decline of other industries is also likely to impact the growth of the tech industry. Again returning to travel, demand for technological innovation is less likely to be high when mere survival is the top priority. Across tech-related industries, new-project budgets are likely to be the first to suffer from cuts in operating costs.

Tech is a complex and multifaceted industry and, while some areas are expected to see reduced growth, there is still likely to be growth. Software, telecommunications and hardware maintenance are very likely to see growth and, therefore, an increase in spending to accommodate the increased demand. By contrast, spending on new equipment and hardware integration is likely to see significantly reduced growth.

A brave new world

Any spending for the rest of 2020 is likely to be a gamble to some extent. Many of the countries still in lockdown remain uncertain of when these measures will be scaled back and, even once domestic measures have been reduced, it’s impossible to tell when international restrictions will be ended. No one can accurately predict when the world will return to ‘normal’, or if there is even a ‘normal’ to return to.

Consistently forward-thinking and always innovating, tech is well-placed to adapt to the changing situation, but the fact that it serves and is served by other industries makes it harder to judge what the most sensible approach to spending and investment will be. Will customers be accustomed to software-as-a-service or will they be so desperate for human interaction that they will shun digital solutions? Will COVID-19 return next winter, creating a second wave of self-isolation? Can the global economy survive continued quarantine? A lot remains to be seen.

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