We have entered an era of the ‘Tech Giant Slowdown’. Companies that used to be the market leaders are now seeing an unprecedented decline in revenue, customers and staff. Facebook is one of the more notable casualties, with vast reports of employees losing their jobs, as well as a drop in users and an increase in the average age using the platform. However, this problem is industry wide with Google, Amazon, Netflix and Salesforce all reporting similar problems.
The macro economics behind this phenomenon are very complex – however, there are three key reasons why we have begun to see this ‘Tech Giant Slowdown’.
1. A lack of forward planning
Online media exploded during the pandemic. Due to lockdown and the shift to working from home, more people were stuck indoors with no other choice but to stream content, scroll on social media and shop online. Companies like Amazon, Disney+ and Meta capitalised on this influx of customers without thinking about what happens when this period ends and people can go outside again. Therefore, they failed to sufficiently prepare for the decline in growth that was to be expected when things returned to normal.
As a result, businesses have begun reporting huge losses for the first time ever, with Netflix losing 1 million subscribers, and Disney+ reporting an operating loss of nearly $1.5 billion which is placing large pressure on their return of investment.
All of these tech companies were grossly overvalued during the pandemic because the number of people available to stream, consume and spend money, reinforced investment of stock. These investors are now asking for a return of value and wondering when they are going to get it. However, with growth hitting a brick wall, tech companies are losing value, with Amazon becoming the first publicly traded company to lose $1 trillion in market value.
This has led to a shift in focus for tech companies. The mentality of growth has completely stopped, and instead, their sole focus is on driving revenue. For example, Warner Bros has begun cancelling notable projects like Batgirl and Westworld despite production already being underway. This is because they are redistributing their money into 100% ‘sure things’ that will generate a greater ROI. For instance, House of the Dragon was one of the biggest television hits this year, which has led to Warner Bros announcing a number of Game of Thrones spin offs in the hope they will generate the same monetary success.
2. A lack of innovation
Tech companies like Netflix, Facebook and Instagram amassed their large number of users and revenue from their initial innovation – creating a product that never existed before. However, this ingenuity has stalled. All of their most recent updates have not been new features, but are copies of popular trends in an effort to catch up with their competitors.
The popularity of TikTok has led to other companies launching their own version of short form videos like YouTube shorts or Instagram reels. Whilst replicating current trends may help these companies stay relevant, it dilutes their offering and brand identity. For example, users are no longer going to Facebook to share updates with their family and friends, or to YouTube to watch long videos, because there are too many other products on offer like Facebook Marketplace or YouTube livestream. This expansion of products has caused an identity crisis, which means they don’t appeal to anyone because their identity is too weak, and therefore, have begun to see users decline.
New innovations, on the other hand, like TikTok or Twitch have a strong brand identity which has contributed to their success. This is also reflected in their community of users, with young people being drawn to TikTok due to the determined brand experience, compared to Facebook where penetration under 25 is low. In fact, TikTok’s brand identity is so strong that users still choose their platform over others despite their links to failing to protect data.
Therefore, in order to become market leaders once more these tech giants need to go back to basics. They need to remember who they are, what they offer and what makes them different from every other challenger brand that enters the market.
3. Failure to understand the impact of iOS 14
Tech companies failed to realise the impact of the Apple iOS 14 update on the media industry. This recent update gave the power to the user to decide whether or not they want to be tracked. Although this sounds like a user centred update, it was in fact Apple’s way of informing tech partners that they will not be able to access their users without using their DSP (demand-side platform). Therefore, there is a growing emphasis on Apple creating their own media engine, and if you wish to advertise in the Apple system, you will have to go through Apple themselves.
This move by Apple shows that walled gardens are higher than ever. The landscape will only become more fractionated as the walls get higher and more companies privatise their data. However, these fractions do not come at the expense of the consumer as their user journey will remain similar. It instead comes at the expense of the brand, media agency or buyers, as they will have more data points to sift through in order to come to the truth about their users’ behaviour.
Investing in data and technology is more important than ever to future proof your business. Our advice would be for brands to sort out their 1st party data and measurement frameworks. This way you can gain a greater picture of your customers, as well as an understanding of how these walled gardens are affecting the funnel journey of your users. It’s only with this information that you can make data driven decisions on where your marketing spend will go which can help improve your bottom line and profitability.
We are currently in a transition period of brands beginning to monetise their own data, for example Netflix launching an ad-supported subscription model. However, from 2023 and beyond this will become the norm so it’s imperative you do not get left behind.
Summary: The ‘Tech Giant Slowdown’ was caused by 3 key factors:
- Expecting the exponential period of growth that was triggered by the pandemic to continue when things returned to normal, when instead they should have known this would not be the case and growth would begin to decline.
- Focusing on copying popular media rather than tech companies coming up with their own innovations, which has led to a crisis of brand identity.
- Failure to understand the importance of Apple’s iOS 14 update which raised walled gardens even higher and highlighted the importance of businesses investing in their own technology and data.
For more information on the ‘Tech Giant Slowdown’ and what it could mean for advertisers, contact Guillermo Dvorak, Head of Digital, today.