Added to which growth in the digital sector is always below global GDP growth, all sectors combined, as revealed in IDATE Digiworld’s 2019 Yearbook. Second, because the impact of growth in most tech sectors is not based on an increase in users’ unitary consumption, but on increasing user numbers (unlimited telecoms and content plans are already widely available) and the massive adoption of applications.
The telecoms sector is no longer one of those that best weathers economic downturns, as had been the case more than a decade ago. The European debt crisis of 2012 to 2015 put an end to that, with dramatic market declines in Spain, Greece and Italy. Networks’ key role as the undergirding infrastructure for all digital activity naturally endows them with some built-in resilience (low churn) except in some particular situations (e.g. a decrease of 21 million mobile subscribers in China, due in large part to multiple subscriptions1). But users will not hesitate to make certain trade-offs in financially tight post-Covid times by switching over to free services. Most operators have in fact made goodwill gestures of lifting caps on content, traffic or data during the crisis (for users who do not already have unlimited plans), so are not monetising this surge in traffic. Their main goal is to protect their revenue. And they will clearly be losing commissions from sources such as sport packages during the confinement, as content will be sorely lacking over the coming months. But the impact for operators will be felt most acutely on the other side of the lockdown, depending on how severe the ensuing economic crisis turns out to be. The freeze also mean slowing down network rollouts, which in turn will affect future growth prospects.
By and large, the IT sector will follow the same trajectory when it comes to B2B services, not least as some sectors have been very hard hit, starting with the travel and automotive (80% drop in sales in China) industries. So investments in digital tech will be postponed as a result, even if cloud computing and cybersecurity initiatives are still moving ahead. IDATE Digiworld analysed the key innovations up to 2025, revealing a massive move towards the phygital, i.e. technologies that combine physical and digital components. Among these technologies, robotics (service robots), 3D printing and drones (for surveillance and possibly spraying) in particular remain especially relevant during these days of social distancing. The countries where they are the most developed are capitalising on them to help services continue to run smoothly. We may well see preventative investments in these areas in future, as well as in virtual reality-related solutions. Here, we should keep a particularly close eye on robotics: robots are useful in diagnostics (notably thanks to imaging, temperature sensors), for serving meals, giving patients their meds, disinfecting premises and so reducing risks of contamination by avoiding close contact with the sick.
The Internet services and digital content sector still relies heavily on indirect monetisation, via advertising and e-commerce – both of which are tied directly to other economic sectors which are naturally cutting back their spending as they are unable to sell their products as usual. If screen time is skyrocketing, advertisers are postponing their campaigns on every media, including the Web. Close to a quarter of advertisers have announced putting their online campaigns on hold, and the sector is projecting a decrease of 20% compared to initial spending forecasts (source: IAB2). In France, expected losses in the display market run go as high as 30% on the year. Aside from food and beverage companies, most advertisers have pulled their TV ads, and heavyweights like French channel TF1 are expecting losses of at least 50% in April. The biggest surprise from an economic standpoint comes from e-commerce, which is clearly not benefitting from the closure of physical shops, with the exception of food and groceries (and especially drive-throughs and home delivery services). More than three quarters of e-commerce sites in France are reporting a drop in sales (source: Fevad3), suffering from supply issues and a logistics chain that is unable to keep up. We are seeing this trend in most European countries, except for Austria, Belgium and Spain. And of course this drop in e-commerce sales applies as well to digital device sales, and notably smartphones.
In the world of paid content, unlimited subscription models are a commonplace. So an increase in usage does not bring in additional revenue, but does increase costs. Added to which, the economic crisis may force some users to choose between multiple subscriptions. SVoD platforms are already powerful, but may benefit from the crisis as content on linear TV becomes more scarce (no sporting events, flagship programmes being spread out over time). Aside from subscription models, the market for paid mobile apps (notably games) stands out as an exception and is enjoying solid growth (source: AppAnnie4), no doubt capturing some of the money usually spent on travel or other entertainment and leisure.
All of the digital industry’s sectors will be affected, but not all at the same pace. The advertising sector (including internet and media services) will take an immediate hit. The IT sector will follow closely behind, after having benefitted to some degree in the short term from work that was already underway, and which can continue remotely. Lastly, telecoms and paid content (already mature, with the possible exception of video games) are likely to stay the course, if not grow, in some cases capturing revenue from other sectors that have been forced to shut down or scale back. But every sector will suffer from the economic crisis that awaits on the other side of the confinement.
Ultimately, then, the digital sector has not really benefitted from the health crisis, as it lacks a truly complementary business model to ensure very large scale distribution, beyond city-dwelling and technophile early adopters, and thereby capture the revenue lost by other sectors. In this respect, the Covid-19 crisis has not really changed a thing.
The DigiWorld Yearbook 2020 is available!
That was the world of “before”. There is now a before and after Covid-19. For many, 2020 will be a pivotal year in what was already a world of tremendous upheaval: the pandemic and its impact on lifestyles and modes of production only sharpened our questioning of the “classic” industrial world, of organisational, political, economic and societal paradigms. A new page in humanity’s history is no doubt being written, and it is up to us to build a positive and inclusive digital society.