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Why 2016 Was a Watershed Year for Tech

Posted by hkarner - 20. Dezember 2016

Date: 19-12-2016

Source: The Wall Street Journal

 

Companies sparred with governments globally as they faced criticism, unprecedented scrutiny

As 2016 nears an end, five of the seven most valuable companies in the world—including the three most valuable—are technology companies.

Beyond their worth in the eyes of investors, Apple Inc., Google parent Alphabet Inc., Microsoft Corp., Amazon.com Inc., and Facebook Inc. also are powerful forces in everyday lives. Tech can seem inescapable.

That helps explain why 2016 also was a difficult year for many of these companies. Collectively, they faced sharp criticism and unprecedented levels of scrutiny while clashing with governments around the world—including the future U.S. president.

It’s no coincidence, for example, that digital-ad spending in the U.S. has been projected to eclipse spending on TV ads in 2016, while Facebook battled concerns about its influence over politics and its role in spreading fake and distorted news. Those developments are two sides of the same coin—Facebook’s power.

Or take Amazon’s new cashier-free stores, which instantly became symbols for how automation “kills” jobs. Amazon has only a handful of physical stores, and doesn’t plan to open its first Amazon Go store to the public until next year, yet its dominance in online retail made this a source of much public concern.

Google had a banner year for both revenue and profit. One price of that real-world influence is three sets of antitrust charges by European regulators who view the company as a sort of American colonial power. The latest, issued in July alongside additional charges piled onto a previous case, accused Google of “strong-arming”

In 2016, tech executives overwhelmingly backed the woman who lost the race for president, while the man who won attacked them publicly and sometimes personally. Many of the parties involved met last week in Trump Tower, apparently reaching an uneasy truce. But many in tech still view the next four years warily, concerned by Donald Trump’s views on issues such as free trade and immigration.

That this exchange happened at all speaks to the cultural as well as the economic dominance of tech companies. At stake wasn’t just where iPhones would be manufactured, but whether globalization is a net economic benefit or a scourge to America’s middle class. The tech industry has come to espouse a common culture of disruption, or progress at all costs, and Trump’s election was in some respects a rebuke to that ideology. The outcome of this struggle will have implications for everything from how friendly regulators are to disruptive technologies like self-driving vehicles to how willing they are to support the transition to clean energy.

The year brought little relief from an ongoing drought in tech companies going public. This was notable because in an age when just about every startup describes itself as a tech company, a drought of tech IPOs means a drought of IPOs.

A handful of enterprise tech companies did go public, but the really big fish, including Uber Technologies Inc. and Airbnb Inc., remained on the sidelines. Like others, I initially viewed their reluctance to IPO as admissions that their business models weren’t fit for the critical gaze of public investors. But the more I learned about these companies, the more I realized they weren’t going public because, quite simply, they didn’t have to.

These companies have access to virtually unlimited amounts of capital, in part as a result of capital flooding the globe following the 2008 financial crisis. Seeking better returns, institutional investors have piled into these companies’ later-stage private rounds, lifting their valuations. One bright spot for 2017 looks to be a planned IPO from Snap Inc., which is a notable exception among holdouts in the billion-dollar startup club.

What of Apple, the most valuable of them all?

Following a record holiday quarter in 2015, Apple saw its first decline in annual revenue since 2001. Some analysts declared that this time, the company was truly, finally out of ideas. This despite the apparent success of the Apple Watch and the potential for Apple’s AirPods to become a new class of wearable computer.

This matters because Apple has become synonymous with America’s power to innovate, as China moves from making things for others to creating brands of its own.

As the world’s most valuable company Apple has become a standard-bearer for America’s innovation exceptionalism. For Apple to falter is for America to falter.

And that was the real theme of tech in 2016: A raft of companies that were underdogs and scrappy upstarts just 20 years ago are now the incumbents, the budding monopolists, the ones in charge. We learned to fear and rely on them in equal measure, let them pervade our lives even as we struggled with their omnipresence. And in their denials, spin and public pronouncements, for the most part they just didn’t seem quite ready to acknowledge their importance.

 

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