A Big Tech race
The author is an editorial writer of the JoongAng llbo.
Earlier this year, Herbert Diess, who recently resigned as chief executive at Volkswagen AG, declared that the time of traditional car manufacturing was over. He warned that German automakers could end up like Nokia, which lost its mobile phone dominance after the dramatic ascent of smartphone maker Apple, if they did not transform themselves fast.
German Chancellor Angela Merkel joined the chorus by raising awareness that hardware manufacturers were rapidly losing clout amid the rise of software businesses that steal away profit with their intermediary role between producers and consumers. German companies could degenerate into “former big-time assemblers” if they do not quickly respond to the need for transitions. Machinery and chemical producers could be the first to sink.
Germany is the primary driver of the European Union, commanding the world’s fourth largest economy. However, the top 30 German corporate names by market capitalization combined do not match a single U.S. company — Apple. The undervaluation of Germany’s 30 biggest companies is the result of the country’s slow response to the Big Tech boom of the 21st century. The bankruptcy and delisting of Germany’s digital payment group Wirecard after a massive accounting fraud symbolizes the crumbling of Germany Inc. The Financial Times reported that entrepreneurs in Germany fear that German corporate names could turn into dinosaurs and go extinct over the next five to 10 years — if they do not change within one or two years.
The dominance of Big Tech also lies at the heart of a power war between the United States and China. The destiny of Korea Inc. is involved because command over Big Tech means taking leadership in the fourth industrial revolution. Columbia University Professor Alexis Wichowski believes that big tech companies have become powerful enough to become government-like entities, calling them “net-states.” As they transcend physical borders and laws, Big Tech giants like Google, Facebook and Amazon have all become more powerful than national governments.
Net-states, or technology behemoths, have come to exert immense influence on the geopolitical, social and personal worlds — except in China. “They exist largely online, enjoy international devotees, and advance belief-driven agendas that they pursue at times above the law,” said Wichowski, a professor of media, government and technology at Columbia University’s School for International and Public Affairs. Big Tech companies are no longer a set of monolithic entities that only offer digital services. Their immense power and financial reach rivals that of countries, their social capital is unrivaled, and they advance belief-driven digital services, she pointed out.
The value of the net-states is reinforced — and reinvented — through seamless connections among users and consumers in the digital realm. Smartphone users around the world check — and feed on — their contents around the clock. They expand businesses through digital platforms. Big Tech companies are unlike traditional enterprises whose business is mostly done after selling a finished product. Big Tech companies evolve on and on. New functions and services can be added every time smartphone hardware and software are upgraded.
The winner takes all on the digital playing field. New entry becomes harder due to the dominance of the earlier players. Customers can use TV programs and video content distributed free by the Big Tech companies. Through its marvelous lead, Amazon, which once sold books online, now distributes all kinds of products across the world 24/7. Google, which started out as an internet search engine, has become an artificial intelligence powerhouse through strong command of deep machine-running technology.
Wichowski puts Tesla in the Big Tech category. She points to the touchpad integrated into the steering wheel of its electric vehicles. Its design makes it entirely different from traditional cars. Although the carmaker’s revenue remains small compared to big players, Tesla’s market cap exceeds Volkswagen’s. Unlike traditional automakers, it sells cars directly to consumers — instead of going through dealerships. It advances automated functions on the vehicles through regular software upgrades just like smartphones.
The evolution of Big Tech companies in the United States owes a lot to the U.S. corporate habitat. Apple, Amazon, Facebook and Google have benefited from the U.S. ecosystem and financial infrastructure. In America, any startup with creative ideas and technologies can draw investments. The country suffered massive housing loan and subprime mortgage crises in the 1980s and 2008, yet such strengths in its financial infrastructure helped fuel growth in innovation. For instance, Elon Musk was able to launch the first private spacecraft thanks to venture capital that invested in his bold SpaceX project and enterprise.
Despite the shocks from the coronavirus pandemic, Big Tech stocks remained strong. Tesla beat Toyota to become the world’s most valuable carmaker as of July 1 after its stock soared to $1,100 from $230 in just 12 months. (Tesla produces 500,000 electric cars annually while Toyota makes 10 million cars.) Social distancing amidst the pandemic has made Big Tech enterprises even stronger. In terms of market capitalization, IT stocks take up one fourth of the S&P500 index. A single category has never been so heavily weighted. The New York Times projected the phenomenon to deepen after the pandemic.
The Financial Times also predicted greater powers for Big Tech in a post-pandemic environment. For example, Amazon hired 175,000 more employees than before the outbreak of Covid-19 thanks to a drastic surge in delivery demand. Delivery platforms also expanded in Korea amidst the epidemic. Coupang saw a surge in users through its AI technology based on Big Data. Google and Apple have moved to develop systems to track down people with virus infections. Even Uber has added food delivery service to its ride-sharing platform. New jobs have been created as they expanded businesses.
The U.S.-China war has expanded into the digital realm. China has long been censoring Google and Facebook. The U.S. also is mulling blocking Chinese apps like TikTok. India, in a territorial dispute with China over areas on the border, has banned 59 Chinese apps, including TikTok. The New York Times noted that even the internet world is breaking up due to the ongoing U.S.-China conflict.
Big Tech holds the key to the Sino-U.S. trade war. Technology hegemony hinges on dominance in Big Tech. The two superpowers are in a horserace on the new technology front. The key U.S. premier players are GAFA — Google, Apple, Facebook and Amazon — while their Chinese counterpart are BAT — ByteDance, Alibaba, and Tencent. An even more important barometer of their competitiveness in the Big Tech war is how many Unicorns each country has.
The Unite States has 217 Unicorns and China 106. The U.K. has 24, Germany 12 and South Korea 11. Unicorns refer to unlisted start-ups whose valuations exceed $1 billion. They are mostly ICT entities. From Korea, Coupang, Baemin, Yanolja, Toss, and Wemakeprice fall into the category.
But Korea lacks meaningful big tech names. Naver and Kakao are powerful at home, but cannot be considered “net-states” — state-like entities with influence beyond the borders. China’s short-video platform TikTok enjoys sensational popularity around the world, yet is hardly a match for U.S. multinationals. Korea remains peripheral in the Big Tech contest between America and China. But thankfully, it has leadership in producing chips, whose demand will only be amplified in the future.