Welcome to Tech Nations Sensemaker – a weekly newsletter dedicated exclusively to covering the tech giants
Alphabet, Amazon, Apple, Facebook, Microsoft and Tencent. Six companies with more influence over our lives, politics and culture than many nation states. That’s why, at Tortoise, we’ve launched the Tech States Sensemaker – a weekly newsletter dedicated exclusively to covering these six tech giants.
Here’s what you need to know this week
- Tech States recorded “drop the mic” high profits thanks to Covid-19
State by state:
- Microsoft’s hacked servers were patched by the FBI
- Facebook’s oversight board asked hard questions
- Apple was targeted by European regulators (again)
- Amazon paid no tax in Luxembourg
- Google faced investor calls for an independent audit
- Tencent was fined $1.5 billion by China
At home, the Tech States’ coffers are bursting. Last week the big five US companies all reported stunning quarterly earnings (Tencent reports later this month). Abroad, they face more threats than ever before, including marauding regulators in Europe headed by Margrethe Vestegar, Silicon Valley’s tormentor-in-chief (see our Apple story below).
Back to the numbers. In the first three months of the year the combined revenue for Alphabet, Amazon, Apple, Facebook and Microsoft jumped 41 per cent to $322 billion. Profit was even more spectacular, rising 105 per cent to $75 billion. The big five now make more in sales in a week than McDonald’s does in a year.
Here are three reasons why:
- Cloud computing: Covid fuelled demand for remote work, education and streaming services like Netflix. Cloud computing power makes that happen. Amazon’s AWS, Google Cloud and Microsoft’s Azure are now a key driver of earnings.
- Gadgets. After a few years of flattish growth, 5G-enabled iPhones were a hit for Apple, jolting phone sales up by 66 per cent. The FT reckons a $3 trillion valuation for Tim Cook’s company is “within reach”. But it’s not just phones which were popular: even PC sales were up on last year.
- Services and advertising. Non-hardware sales at Apple (for example, its music and TV services) helped lift gross profit margins to more than 42 per cent: one analyst called it a “drop the mic” performance. Meanwhile Google and Facebook registered their strongest advertising growth in years.
A perfect (positive) storm. For millions of us, the pandemic increased our digital dependency on the Tech States, transforming their services from influential to indispensible. Now we’re emerging from the crisis, we seem to be sticking to the platforms we were forced to use in lockdown. Big Tech growing stronger because of the pandemic is, as the New York Times puts it, “both logical and slightly nuts”. But as Gene Munster of Loup Ventures points out, “Consumers once valued choice, but what they value now is dependability”.
If anything, the latest figures will increase regulatory scrutiny on the tech giants. But for now investors are just enjoying the party. As one told us: “These numbers make you forget the threats. The question is: how much bigger can big tech get?”
If you want to read more, the FT has a good write-up.
Robert Hannigan, former head of the UK’s GCHQ spy agency, joined the New York Times’s Nicole Perlroth and Tortoise’s James Harding to discuss cybersecurity last week, and Microsoft came up. A US court recently allowed the FBI to access hundreds of American computers without telling their owners. The computers had been hacked, probably by the Chinese, through Microsoft’s Exchange email program, and the Feds removed malicious code that the hackers had left behind. Hannigan described it as “mending the locks on your door even if you don’t know they’re broken”. He said the FBI’s unprecedented action was an interesting model for the future: “All of us are nervous about governments coming into company networks. On the other hand, we need a greater level of concerted defence.” If you’re interested in conversations like this, you can sign up for the Tortoise AI Network here.
All eyes are on Facebook’s Oversight Board which will decide today whether or not to permanently ban former US president Donald Trump. But a decision issued last week is almost as interesting. The board ordered Facebook to reinstate a post accusing Indian prime minister Narendra Modi of threatening the country’s Sikh religious minority. In its decision, it noted that Facebook had “declined to provide answers” about whether Indian authorities had asked Facebook to restrict such political content. To David Kaye, a former UN Special Rapporteur, this is a welcome sign the board is doing its job.
Today: Tortoise is hosting a well-timed Thinkin at 6.30pm on Facebook’s Oversight Board and its Trump decision. You can join us by signing up here.
Apple has been charged by the European Union with antitrust violations relating to music streaming, adding to a fat file of investigations against the company. Regulators accused Apple of “distorting competition” by forcing rivals like Spotify to pay a 30 per cent commission on purchases made inside its app store. The complaint bears similarities to the Epic Games antitrust case against Apple (a federal court is hearing Epic’s lawsuit all this week) and Epic has lodged its own antitrust complaint with the EU. US authorities are investigating the subject as well. If Apple’s stellar earnings slip (this year 5G could have provided a one-off sales boost that won’t be repeated), then any ruling curtailing App Store profits could be significant.
Tencent: state regulation
Tencent’s close working relationship with the Chinese authorities (helping its central bank to develop a sovereign digital currency, for instance) hasn’t prevented it being fined around $1.5 billion. Reuters reported that the State Administration of Market Regulation (SAMR) was preparing to penalise Tencent for not properly reporting past acquisitions and investments, including in the music streaming sector. Tencent may take comfort from the fact that the fine is expected to be smaller than that the record $2.7 billion penalty levied on Alibaba, its chief rival.
We all know that Big Tech doesn’t pay much tax. Google and Apple have been dinged for utilising structures known as the Double Irish and the Dutch Sandwich, strategies companies use to move profits from higher- to lower-tax jurisdictions. But Amazon may have gone one step further: its latest Luxembourg accounts, which reflect its European operations, show it paid absolutely zero corporation tax on €44 billion of sales in 2020. Even though sales last year rose by €12 billion from €32 billion in 2019, the company still managed to record a €1.2 billion loss. If European nations needed a reason to back US president Joe Biden’s proposal for a new global tax system, this might be it.
Google: Human rights
Google is facing mounting pressure to allow third-parties to audit its policies towards workers. Last week Color of Change, a non-profit civil rights organization with seven million members, called on Google to address discrimination against “Black Googlers” who it said faced a hostile work environment.
It’s not just outside groups calling for independent scrutiny. Last month Trillium Asset Management, a Google investor with a $140m stake, issued a shareholder proposal requesting a similar review of the company’s whistleblower policies. Jonas Kron, Chief Advocacy Officer at Trillium, told us the requests for audit were “benign” and would be for the good of the company. He argued that the biggest barrier to accountability is Google’s dual class structure, which he said was used by the founders to “protect themselves” from accountability.
Trillium’s proposal was backed up to the SEC yesterday – you can read it here.
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