Sheltering in place has brought changes to how we live and work, particularly in the Internet space. As nations address the economic downturn caused by coronavirus, here are five areas of potential disruption online.
Recessions, by their nature, may be the quintessential disruptor. They often reveal weaknesses in the long-term health of an industry, shining a spotlight on outdated business models that were overlooked during boom times. However, recessions also create opportunities, as consumers and businesses adapt to changing circumstances.
The COVID-19 pandemic and resulting recession qualifies in both cases.
Sheltering in place has brought dramatic changes to how we live and work, particularly in the Internet space. Consumers shifted more grocery and home goods purchases online; businesses embraced innovative ways of working remotely; and society explored untapped avenues of communication and entertainment. But these areas may be just the beginning.
As nations address both the coronavirus and the related economic downturn, here are five areas of potential disruption online:
U.S. small and midsized businesses (SMBs), hit hard by state lockdowns, will be looking for ways to get consumers shopping again. This may mean a greater role for search and social media giants through the end of next year and a more powerful avenue for SMBs to market their services. Consider that social media players have tens of millions of SMBs on their platforms and just a fraction of those are advertisers. Moving forward, this may grow, as SMBs look to start/restart their businesses.
Likewise, search engines could see increased usage by SMBs by focusing on local reach, easier SMB on-boarding, and smaller minimum dollar commitment for ads. Another avenue could be greater monetization of navigation apps with local, national and branded advertising dollars. Broadening this would allow large retailers, brands, and local businesses to reach potential shoppers within their geographic area who express intent ("search for donut shops near me").
For social apps, look to see a more sustained focus on building digital town squares, local groups and e-commerce offerings. Key barriers to overcome in the e-commerce space include robust, real-time inventory, frictionless payment, and logistics.
Ridesharing companies have seen revenues plummet, as lockdowns dramatically reduced passengers. To stay afloat, these companies have been experimenting in the shipping and logistics space, helping retailers deliver products and better compete with e-commerce giants.
If successful, these efforts could mean new revenue streams, increased driver employment and higher potential earnings power for its drivers. This is particularly notable heading into 2021, when the elevated unemployment rate in the U.S. could result in a larger pool of available drivers. Ridesharing companies may look to expand into ancillary services and/or to offer lower prices for riders/consumers in their core business. What could change the outcome? Substantial growth could mean incremental regulation (benefits, vacation allowance) and increased labor costs.
Each May, TV networks and content producers hold the “Upfronts,” a presentation for advertisers that highlights the coming season of programming. COVID-19 derailed those plans. Networks are now faced with the postponement or cancellation of most major sporting events and an expected weak fall line-up of new scripted content, amid shuttered productions. This disruption may force advertisers to shift media plans, leaving a larger portion of the roughly $60 billion of annual U.S. TV ad spend up for grabs by digital players.
While the disruptors’ leading—and growing—reach, targeting, measurability and real-time pricing suggest that this shift may have been in the making for the past decade, COVID-19 could accelerate that timing. The key question is whether digital platforms can deliver consistent, high-quality reach and engagement across a wide variety of demographics, as well as advertisers’ ability to develop incremental digital creative capabilities.
Since the spread of the coronavirus began, video game publishers (both PC/console and mobile) have been seeing increased player engagement and in-game monetization, thanks to shelter-in-place conditions.
Two big questions now: Can game publishers continue to develop high-quality, well-curated titles, as cities begin reopening and gamers venture outdoors; and will the strength in digital gaming further underscore the cloud-gaming opportunity and scarcity value of these businesses, even through this recession? If so, look for consolidation between publishers, or even an acquisition from some big tech names.
Big tech has played a part in limiting the spread of COVID-19, with some corporates investing in ways to better test and detect the spread of the disease. Global health organizations have been using machine learning, artificial intelligence, cloud computing and security tools in efforts to contain the pandemic.
The extent to which big tech companies are successful—and cloud-computing tools prove to be more effective—would be a positive for the sector’s efforts to capitalize on the multibillion-dollar opportunities in the medical field. Hurdles ahead: Expect access to data, privacy and time (since solving medical problems is often measured in years not months) as the main barriers.
For more Morgan Stanley Research on Internet trends and the coronavirus recession, ask your Morgan Stanley representative or Financial Advisor for the full report, “How Could the Downturn Change the Internet?" (Apr 16, 2020). Plus, more Ideas.