The coronavirus pandemic and subsequent quarantine measures are taking a toll on the world’s economy. According to McKinsey, things could go one of two ways.
Following the first scenario, nation-wide quarantines, travel bans, and self-isolation will result in a sharp decline in consumer and business spending through Q3. Consumers stay home, businesses operate at a loss, startups struggle to close investment rounds, and unemployment claims hit an all-time high across the USA and Europe.
In the second scenario, the coronavirus doesn't come under control until much later. The quarantine will stay in effect for the rest of 2020, resulting in massive bankruptcies and corporate lay-offs. Thanks to banks’ strong capitalization, the financial sector won’t collapse, but the global economy will not show signs of recovery until the spring of 2021, displaying a modest GDP growth of 0.5% this year.
How the Tech Industry is Responding to the Pandemic
Although China, the world’s leading manufacturer of semiconductors, storage solutions, and electronic devices has resumed most of its factory output, the technology industry will hardly escape the turmoil.
The coronavirus has changed the way users and businesses work, interact with technology, and consume digital content.
Here's the reality of the new landscape:
- The ambitions plan to roll out 5G nationwide across the USA and Asia could be put on hold for as long as 18 months. Without a more efficient network infrastructure, the future of IoT projects that involve heavy data processing and edge computing (for instance, Smart Cities) remains uncertain.
- With a third of the world’s population living in self-isolation, new regulations regarding Internet traffic usage might come into effect. That means that video streaming traffic will be prioritized for news providers, emergency services, and core business applications. As a first step to ease the strain on Internet networks, YouTube will reduce the quality of videos for all users worldwide.
- AWS, Microsoft Azure, Google, and other cloud computing platforms have become a critical infrastructure supporting business processes and digital content distribution. During the quarantine and in the months to come, we’ll see more brands refactor legacy applications for SaaS or PaaS. Cloud app development specialists with a good grasp of microservices and containerization will be in high demand.
- Before the coronavirus outbreak, 53.3% of Internet traffic was coming from mobile devices. As more people choose to self-isolate, tablets and laptops seem to be taking over. This also means users won’t purchase new smartphones and portable gadgets in the near future, so the shiny foldable phones and tablets we saw at CES 2020 will be sitting on the shelves gathering dust until the situation improves.
- eCommerce businesses have registered a surge in online orders, and Amazon even considers hiring an extra 100 thousand warehouse workers to meet the growing demand. However, not all product categories are trending up. While we've seen massive growth in food, pet supplies, and home electronics purchases, companies that sell clothes, portable gadgets, and automotive-related items are watching their business dry up.
In particular, the quarantine is affecting technology startups, as smaller companies typically plan a runaway of six to eight months between investment rounds. In the coming months, VCs will most likely become more selective, cut investments in half, and continue working with existing companies to help them survive.
Well-off businesses like Airbnb and Uber are struggling too. The vacation-rental giant has racked up escalating losses and is looking for investors, while Uber is making 70% fewer trips in the cities most affected by the virus.
According to an online survey conducted by Blind, 53.8% of employees at large US technology firms are afraid of losing their jobs, while 62% of the respondents believe the crisis will affect their income.
However, many technology companies see the time of uncertainty as a business opportunity for the industry.
These IT Sectors are Leading the Way for Post-quarantine Economy Growth
- e-Learning. In the USA, at least 64 thousand schools with a total enrollment of 32.5 million students have already been closed. Globally, the number of students out of school surpassed 290 million in early March. To protect their students and the broader public, school officials are transitioning to remote and online education. As a result, e-Learning platforms like ClassIn, Seneca, and Century have registered a dramatic increase in usage. Following the coronavirus outbreak, the international online education market is expected to grow at a CAGR of 16.6%. And although there’s no clear indicator the surge in demand will drive revenue in the long run, many education organizations are considering investing in online learning platforms to be better prepared for situations like this in the future.
- Teleconferencing. Before the coronavirus outbreak, Eric Yuan, the founder of Zoom Video Communications, was nowhere to be found in the Bloomberg Billionaires Index. Today his company is worth more than the four biggest US airlines combined. As more companies switch to remote work to contain the virus, enterprise teleconferencing tools become essential to keep businesses afloat. According to Sensor Tower, apps like Zoom, Slack, Tencent Meeting, and Microsoft Teams were downloaded 6.7 million times in the first week of March.
- Telemedicine and healthcare IoT. The virus outbreak is expected to drive the adoption of healthcare technology — particularly, telecare systems and IoT-based health monitoring solutions. In China, telecom companies created a 5G-powered system that connects physicians from Sichuan University’s West China Hospital with 27 regional hospitals treating coronavirus patients. The country also equipped police officers with drones, which allow the officials to detect people disobeying quarantine orders using thermal sensors. Another example comes from South Korea, where the government created a mobile app that helps self-isolating patients stay in touch with healthcare providers. Australia decided to fight coronavirus disinformation with the help of a chatbot. Additional measures are being taken to protect hospital IT systems against cyberattacks. In the future, the data accumulated using healthcare devices and apps could be analyzed using AI algorithms to trace the origin of a disease outbreak and manage the crisis more effectively. All in all, the shift towards digital is irreversible.
- Augmented and Virtual Reality. While teleconferencing and task management solutions help remote teams stay productive, some industries rely on hands-on training and field service to get the job done. As factories shut down, industrial workers can undergo training using VR and AR headsets. Extended Reality (XR) can also impact the declining tourism industry: during the quarantine, dozens of museums around the world are offering virtual tours, while agencies use platforms like Travel World VR to market travel experiences.
- Delivery services. According to FoodBoss, a company that monitors restaurants and food delivery services in more than 50 US cities, there’s a steady increase in contactless delivery options because of the quarantine. Major services like Uber Eats and EatStreet now allow customers to choose whether they want to interact with human food couriers. Although no fully automated food delivery service has been launched so far, the new demand could force governments to finally pass laws regulating commercial drone delivery, which is set to become a $27 billion market in the next ten years. China has already managed to deliver medical supplies 50% faster using drones, and it'll be interesting to see if this same efficiency can be applied to the food and beverage sector.
What Comes Next
The extent to which technology companies are being affected by the COVID-19 outbreak shows how much the industry depends on China, its production facilities, and buying power. Microsoft, for instance, has recently reported the quarantine was slowing down the production of Surface laptops, while Apple might not meet their revenue targets for the first time in 16 years.
The software development industry had been affected, too. Global technology companies that outsource IT services or have R&D facilities in Asia don’t have an effective remote workforce strategy in place and are struggling to remain productive. Even though the supply-and-demand imbalance within the technology sector will protect the US workforce from the full impact of a temporary decline in IT hiring, 30% of small and medium-sized businesses are dealing with significant financial strain. As a result, more companies will rethink their hiring policy and partner with technology providers from regions less affected by the pandemic.
The good news is, the governments will seek the help of IT businesses during the crisis.
Besides revamping healthcare systems, technology companies will be engaged in nation-wide projects, such as Smart City initiatives and the development of disaster management platforms, that will help the world predict and prevent pandemics in the future. In the short run, e-Learning, teleconferencing, and cloud computing will remain the biggest drivers of the IT economy.