By Eyeview

The titans of technology have feet of clay

Mar 1, 2018 | 4:00 AM

TECHNOLOGY SEEMS UNSTOPPABLE. The accumulated wealth of the Big Five: Apple, Alphabet (Google’s parent company), Microsoft, Facebook and Amazon, have a combined value of $4 trillion. That’s more than twice Canada’s annual GDP.

Wall Street also looked unstoppable before the crash of 2008. Cryptic investments made amazing returns but finance wizardry also has feet of clay. Conor Sen, business columnist for Bloomberg Views, summarizes that vulnerability:

“Markets became irrational about how profitable the financial sector could become relative to the underlying economy, and in response to these market pressures, finance came up with increasingly elaborate schemes to make money that weren’t sustainable (Globe and Mail).”

Facebook and Google have the advertising world wrapped up. The clever duo don’t have to hire reporters to dig up news because users generate their own content. Facebook and Google benefit in three ways: by encouraging users to generate content, collecting detailed profiles of users, and then selling advertisements to those very users. Users happily post pictures of adorable kittens, videos, inflammatory and sometimes interesting comments (but not much actual news).

While Facebook and Google couldn’t care less about the loss of newspapers and other news sources, they should be worried about the financial health of their advertisers. Companies can afford to advertise only because they are viable. Amazon is profitable because third-party vendors choose to sell on Amazon.

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“In other words,” says Sen, “for the most part, the big five tech companies exist at their current size and scale only because they serve a larger underlying economy of profitable companies.”

Tech giants exist in an economic ecosystem. There has to be a balance between the top predators and the health of the ecosystem which they feed. There’s going to be trouble for the big fish once the little fish stop feeding them.

Tech giants don’t just suck only advertising revenue from traditional sources. They also provide services that didn’t exist when newspapers ruled, like the cloud computing services provided by Amazon, Google and Microsoft. Cloud computing also depends on a viable economy.

The titans of technology could harm the very businesses they depend on. For example, Blue Apron, a meal-delivery company, has been a prolific online advertiser. What if Amazon were to establish a company and put Blue Apron out of business? It’s not inconceivable. Last year, Amazon bought Whole Foods for $17 billion and even the world’s biggest retailer Walmart took notice. Target is cutting advertising to stay in the game.

Fossil Group has been struggling lately. Sales of their watch have been dropping, perhaps because of the popularity of Apple Watch. If Fossil Group starts to cut back on advertising, Facebook and Google would lose ad revenue. Amazon would lose sales of the Fossil watch as well.

Owning a newspaper used to be a licence to print money. The marriage of news and advertising seemed solid. Now readers get “news” from the internet. Selling advertising on a medium where the content is generated by the target audience seems like a sure thing.

Amazon, Google and Facebook have a parasitic relationship to the economy. Other than advertising and marketing the products of others, their contributions to the economy are minimal.