Tech trends for 2018: the big will get bigger
Apple, Google and Facebook will continue to dominate as Alibaba and Tencent rise
If you are wondering what the biggest business stories in the tech world will be next year, forget driverless cars, augmented reality goggles and computers that respond to the human voice.
Those inventions generate eye-catching headlines, but the main engines of growth for the biggest tech companies in 2018 are ones that have already become a deeply ingrained part of business life: digital advertising, ecommerce and the wholesale move of global IT to the cloud.
It is always dangerous to put too much faith in extrapolation, but some trends in digitisation are hard to ignore. They are driven by the emergence of a pervasive technology infrastructure and a preference among users for the convenience of digital services. They also reflect the willingness of more businesses to operate on platforms built by companies such as Google, Facebook and Amazon — as well as China’s emerging tech giants Alibaba and Tencent.
Consider advertising. About 40 per cent of global ad spending is currently devoted to digital channels — only a slightly higher proportion than accounted for by TV. The superior targeting and potential for interactivity of digital networks should continue that shift.
Advertising has also become the prime example of digital platform dominance. Just two companies — Google and Facebook — account for almost all of the net increase in digital ad spending over the past two years. The pace of digitisation will slow if couch potatoes cling to their TV habits, and others may carve off a bigger slice of the video advertising pie, but the underlying shift feels inexorable.
A lower share of the world’s retail sales has found its way online, leaving plenty of room for growth. Ecommerce accounts for about 14 per cent of sales in the US and 9 per cent in western Europe, according to Goldman Sachs. In China, the figure is 22 per cent.
As with the leading advertising platforms, Amazon has been exhibiting some of the winner-takes-all characteristics that come with digital dominance. Its growth rate has accelerated as it has grown, not slowed.
Meanwhile, a recent Goldman survey found that only about 19 per cent of the computing workloads carried out by large multinational companies have moved into the cloud. The sunk cost of the existing IT infrastructure will mean that the transition to cloud computing will take many years to play out. But with global IT spending set to reach $3.7tn next year, according to Gartner, the size of the business opportunity is massive.
The US platform companies that have positioned themselves to ride these waves are ending 2017 as the world’s five most valuable groups: Apple, Google, Microsoft, Amazon and Facebook. And even with Apple expected to show barely any revenue growth in 2018, these companies are forecast to add $100bn in sales between them next year — a collective growth rate of 14 per cent.
So what are the main risks? It may be that, in 2018, intimations of mortality will become more apparent. Apple has struggled to show where it will find growth beyond the smartphone. Google has yet to repeat its search advertising success in other markets. Microsoft still has one foot planted in the old PC world.
FT Forecasts 2018: Big tech to face regulatory pressure
The most immediate threat could be external. European regulators and courts have led the way in pushing back against the power and wealth of the tech giants, from last year’s €13bn penalty over Apple’s preferential tax position in Ireland to this month’s ruling that Uber should be regulated as a transport company. In between came a record antitrust fine against Google.
The spotlight has now shifted to Washington, thanks in no small part to the political outcry over Russia’s use of Facebook to influence last year’s US presidential election. Privately, all the big tech companies are braced for regulatory action, though in the current febrile US political climate, it is hard to see exactly what form that will take.
The gathering political clouds in the US should also help to accentuate the rise of China’s tech leaders. These companies have succeeded in aligning themselves closely with the interests of their state and enjoy a domestic market that is largely insulated from foreign competition.
They have yet to step fully on to the world stage, despite recent investments in Snap and Spotify among others. But by the end of 2018, there is a good chance that their global aspirations will have become much more apparent.