Being physically isolated from one another may be a hard thing for humans to deal with, but in this age of information technology, being physically isolated may actually bring on faster the transition to the new era dominated by information technology.
There is no question that people’s habits change during periods like we are going through. This is why it is vital for investors to be aware of these changes, so that they can adjust their investing practices so as to take part in some of the opportunities that can arise.
We are already seeing major changes in behavior taking place all over the world. How this gets transformed into the “new’ future is, right now, anyone’s guess.
I have already written about how things are changing, see “Business Will Never Be the Same Again,” even though we have not reached the bottom of the anguish related to the spread of the coronavirus. We still have a ways to go before the impact of the virus spread begins to lessen.
But, behavior is changing and these changes are already being transmitted to the business community in ways that will never be reversed. Today, I examine two such areas.
Changes Are Coming To Banking
I have already written about the changes I see coming in the banking industry. I have been particularly interested in what is happening with regards to the payments system, because payment services are the foundation of banking.
In early February, I wrote,
Payment services has become one of the most important and vital parts of the financial system and will play a growing role in the future of the finance industry…. Now, innovators and investors have focused in on this industry realizing that this area is the key to the financial system and whoever dominates this space is going to play a very important role in the future of finance.”
But, what do we see taking place right now? Angus Loten writes in the Wall Street Journal,
Digital-payment services are facing a surge in demand as efforts to stem the novel coronavirus pandemic result in housebound shop0ers stocking up on groceries, prescription drugs, audiobooks and movies online.”
Mr. Loten notes, “In Italy, one of the first countries to order residents to stay home…e-commerce transactions have soared 81 percent since the end of February….”
Certainly, more and more people are now using, or will use, these payment services than ever before. Even if some people revert to old habits after the crisis is over, my expectation is that use of these digital payment systems will become the means by which most people do their banking. We have moved on to become a new generation.
And, who are the major players? PayPal Holdings, Inc. (NASDAQ:PYPL), Visa Inc. (NYSE:V), Mastercard Inc. (NYSE:MA), Amazon.com, Inc. (NASDAQ:AMZN), Alphabet Inc. (NASDAQ:GOOG) (NASDAQ:GOOGL), and Apple Inc. (NASDAQ:AAPL).
But, these providers are tied to the largest banks in the world. And, the underlying economics of this opportunity is scale, pure and simple. This is what the future banking system will be built on resulting in an even greater domination of the industry by the biggest banks.
Other Changes Impacting Big Tech
Working from home is also going to have dramatic impacts on the future. As reported in the New York Times,
With people told to work from home and stay away from others, the pandemic has deepened reliance on services from the technology industry’s biggest companies while accelerating trends that were already benefiting them…. When the economy does eventually improve, Big Tech could benefit from changes in consumer habits.”
One reason for this is cloud computing for companies managing their Internet infrastructures. Making adjustments to computing needs on the fly is expensive and complicated. Cloud computing makes it easier.
Amazon (AMZN), Microsoft (NASDAQ:MSFT) and Google, the three major cloud-computing platforms, are swimming in cash and offering deep discounts for renting the underlying infrastructure for a corporate network as well as the software used by employees.
Microsoft has aggressively pushed its new business messaging and collaboration tool, Microsoft Teams, which competes with the independent company Slack (NYSE:WORK). On Thursday, Microsoft said the number of users on Teams had grown 37 percent in a week to more than 44 million daily users. There have been at least 900 million meeting and call minutes on Teams every day.
So, the biggest technology companies seem to be holding their own in this environment. The reason for this, as I have emphasized on numerous occasions: these “new” Modern Corporations can expand scale at a zero- or near-zero marginal cost. Consequently, they can handle the increase in volume without ramping up the price of their services.
The New York Times article provides these data: “Amazon said it was hiring 100,000 warehouse workers to meet surging demand. Mark Zuckerberg, Facebook’s chief executive, said traffic for video calling and messaging had exploded. Microsoft said the numbers using its software for online collaboration had climbed nearly 40 percent in a week.”
These benefits are not extending to all companies in the industry. Whereas, communication tools like the videoconferencing service Zoom (OTC:ZOOM) are now essential, ride-hailing firms like Uber (NYSE:UBER) and Lyft (NASDAQ:LYFT) and property-rental sites like Airbnb (AIRB) are not doing as well. However, the changes in demand will not go unnoticed once the economy begins to recover and people move out and about. What will be noticed is the changing habits of the people.
As I suggested in my earlier article, “Business Will Never Be the Same Again,” the United States and the world are at a point where the current events related to the coronavirus pandemic are bringing the new era to us at a very fast pace.
Ironically, the consequences of the pandemic are forcing many people to use modern information technology that would not have used it otherwise or would not have used it to the extent they are now using it. And, this extended usage is what is going to change the future.
As we can see, the added use of payment services and the added use of communications systems due to working at home are changing the scale at which Big Tech and Big Banks are working and this will only grow as the recovery gets under way.
This information and communications explosion will spread and there will be lots and lots of new opportunities for the innovative and the entrepreneurial to work with. Big Tech and Big Banks will thrive in this environment, but the opportunities will be substantial for others to participate.
In the future, I want to attempt to identify where the opportunities are, for the big and the small. Investors should concentrate on what the new future will look like, not the “legacy” we are now leaving.
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.