During Microsoft’s earnings call last year, Satya Nadella, the CEO of Microsoft stated that the pandemic has driven years’ worth of digital transformation into a short period of time, and I think everyone can agree to that as our life’s changed forever as well. We are in the midst of the great migration where legacy industries get eliminated and new industries emerge. The whole economy is as uneven as it can get but this is the new normal and there is nothing we can do but get used to it, if you run a business, you either adapt or you will get wiped out. The shift is pretty broad and deep with sectors linking to sectors but I’ll try to cover as much ground as possible
The most noticeable trend is certainly everyone shifting from working at the office to working from home. As employees try to remain connected with employers and other employees, video conferencing needs skyrocketed, basically everyone is using the software Zoom (ZM), which became the new buzzword now. Big companies like Microsoft (MSFT) and Google (GOOG) are also trying to ride this trend by offering software like Teams and Google Meets to rival Zoom. This new working style also proves that offices are actually not that necessary for a lot of businesses and with technology nowadays working from home can have the same efficiency as working from offices. A lot of companies are planning to cut the number of offices rented and allow more employees to work from home which benefits both sides as companies are able to cut costs while employees can have more flexibility.
The most significant shift that all of is the shift from physical shopping to e-commerce. e-commerce had been the trend for a while for young people but a lot of older generations are still reluctant to try it out. However, with the pandemic forcing us to be at home, this gives a chance for people not used to e-commerce to try it out. E-commerce is a really sticky business as it vastly improves the efficiency of customers and they tend to stick with it and will rarely go back to shopping in person except for certain items. This helps companies like Amazon (AMZN), Walmart (WMT), Farfetch (FTCH), Etsy (ETSY), and etc to gain a huge amount of new customers in a short period of time and with them sticking around their revenue (and recurring revenue) exploded, this also gives them a chance to cross-sell other products, to increase ARPU (average revenue per user) as well.
These two trends also indirectly benefited logistic industries such as shipping, trucking, and delivering. For the work from home trend, the demand for computers and electronic devices increased a lot, which also resulted in a huge increase in demand for its component such as semiconductors. The whole semiconductor industry is facing a huge shortage and shipping companies and trucking companies are having their backlog booked fully. Same with delivering companies such as FedEx (FDX) and UPS (UPS), the increase in e-commerce customers means a lot more items and goods need to be delivered and the sudden increase in demand pushed these companies to work in full capacity as well.
As people are staying more at home the online entertainment industries such as streaming services, podcasts, and online betting also took off. A lot more companies rolled out their own streaming service to rival Netflix (NFLX), the largest player in the game. Disney (DIS) got Disney+ with its huge library of content including the much-loved Marvel series. AT&T (T) got HBO Max that focuses a lot on superb quality content, and there are other players such as Hulu, Peacock, Fubo TV (FUBO), and more. Music streaming services like Spotify (SPOT) also see an increase in subscribers and usage as people are trying to kill time through listening to music and podcast (a new area Spotify is focusing on).
This ends up benefiting companies like Roku (ROKU) and digital advertising firms as Roku is a device that enables customers to connect their streaming service to their tv and allows them to switch between services easily. Whereas digital advertising companies that focus on connected tv such as The Trade Desk (TTD) saw revenues increase as well as companies are putting more budget on advertising through video and music streaming services as they know that more and more people are streaming through connected devices.
Online betting and gaming is a relatively niche industry that has benefited as people are unable to go to casinos so they are finding other ways to gamble and play, and once they realize there is such easy access to gambling through these apps, they are stuck with it as gamblers tend to have really bad self-control. As for gaming, just like music streaming, gamers are spending more time playing which resulted in a large increase in usage that benefited gaming companies.
One newly emerged industry is online freelancing, as people are stuck at home and the economy is not doing that well, people are finding ways to earn money through side hustles. Unlike traditional part-time jobs, online freelancing fits right into the work-from-home trend as you are able to do all the work at home online. Companies most notably Fiverr (FVRR) and Upwork (UPWK) allow anyone to post the service they are able to offer such as coding or translating and if anyone or companies are interested they can buy your service through the website or app. These also benefit the buyer of the service as they can source the specific talent they need online easily.
Then there is the supporting network for the trends above. As you can see most trends involve transitioning offline to online, and this new ecosystem requires a supporting network for it to function smoothly. For example, you cannot pay with cash for an e-commerce website, your streaming service cannot lag all the time, and etc. Therefore industries such as digital payment, CDNs, CPAAS, and cybersecurity are really important for this new ecosystem.
Digital payment is the backbone of it all, almost all the emerging trends I have mentioned above solely relies on payment transaction digitally. Digital payment is a lot more efficient and effective as it can record each transaction automatically and allow people to do transactions online without having to meet. Another reason people are avoiding cash is that it is one of the transmitting channels for the virus therefore it is safer to use digital payment.
CDN stands for content delivery network, which is a geographically distributed network of servers and data centers. The purpose of having a CDN is to provide high quality, smooth, and high availability performance for end-users. This is important for industries such as streaming services, video conferencing, online gaming, etc as companies want to provide a seamless experience for users.
CPAAS (Communications Platform-as-a-Service) is essentially a solution that allows companies to communicate with customers through messaging, web conferencing, text messaging, voice calling, and more. Remember back when you have an advertising flyer you want to deliver so you hire a person to help you deliver it, CPAAS is a platform that acts like the person that connects you and your customer, but all through the cloud online.
Then there comes cybersecurity. Just like in real life, online safety is very important. Especially when a lot of sensitive information like a bank account, personal numbers, and addresses are all stored online. The demand for cybersecurity boomed as almost everything shifted online and information that is now stored online needs to secure safely. Therefore companies are reaching out to cybersecurity companies for different solutions to ensure to safety of their website, transaction, and information.
Last but not least is consulting firms like Accenture (ACN), Epam Systems (EPAM), and Globant (GLOB), a really interesting industry that has benefited from the shift. Companies are shifting online and even they are in need to change their business strategy to tackle to changing environment. All of the “shifting online” and handling the IT side of things are quite complicated therefore a lot of companies reached out to consulting firms for help and guidance. Consulting firms then provide a solution that helps companies organize their transition or change in strategies.
During the pandemic, a lot of companies were left in the dust yet a lot of new companies and industries emerged. I believe Satya Nadella is right, the pandemic really did drive years’ worth of digital transformation into a short period of time. From how we work, how we shop to how we entertain ourselves, everything has changed and I believe it is here to stay. I think it is a really good thing as we are evolving to a more efficient society where things are done in a more effective way. we have been on the road of economic migration for years and this might finally be the time where we see a large and broad adoption of the new digital technology.
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