Financial techlash

When 2018 started, not many analysers had realised that the “sentiment” around the I.T. industry was changing.
By the time the year ended, what happened was before everyone’s eyes:

• Amazon went under scrutiny for the workforce treatment,
• Facebook was investigated for the mess surrounding many recent elections, fake news and privacy invasion,
• Google was criticised from multiple angles, from sexual misconduct, to cooperating with dictatorships, to links with controversial technological projects

While some of these points weren’t entirely new, they reached a new magnitude.
Under the changed climate, Apple, Amazon, Facebook, Netflix all suffered losses between 25% and 50% of their respective stock value. 

So one may wonder what came first: if the signs of financial instability, or the change of sentiment against them. This is an unanswerable question in many way, but let’s go through some history and I will then propose my view on the matter.

Google climbed its way to become one of the largest corporates in the world while marketing itself under one motto: “Don’t Be Evil”. It was the early 00s, the fortune 500 list was still dominated by Petrol giants and car makers, Banks and the very few IT companies on the list were mostly into hardware, Microsoft being a notable exception.
In this world, “Don’t be evil” sounded a little bit new age, but it stood out to instate the trust of a generation towards a new way of looking at the world and the world of business.

As if leaving behind the innocence of childhood, Google slowly phased off that motto during the 10s, and in retrospective that seems the one best metaphor of how we got here.
I.T. companies that were once loved and cherished by public opinion, are now looked at with far greater suspect than they have ever been. 
Our initial enthusiasm and trust in them might have been excessive to begin with, and the counterwave is beginning to cause a backlash that some have already named a “techlash”.

However as said before, Amazon workers condition and google dubious privacy policies have not substantially changed in recent years, so what Did, really change?

I believe there is a combination of factors:

1. for a long time I.T. companies enjoyed a bonus for the simple fact of not being  finance or petrol industries.
   At the time, the difference in corporate ethics between the old dominating corporates and the newcomers was so glaring, that enthusiasm remained the dominant sentiment for years.
2. I.T. companies kept innovating and improving our lives for about as long; the tangible effects of their work kept feeding the enthusiasm, but recently things started to slow down in that department… mobiles begun bringing little novelty to the table, social media became a consolidated reality, just as the notion that all knowledge in the world is just two clicks away. As our innovation sugar-rush is waning, our enthusiasm follows.
3. as I.T. companies changed their status from underdog startups to dominating, largest corporations in the world, they started behaving accordingly, washing away the reputation of being enfant-terribles, and starting to integrate into the system more to behave as a more rational profit generating reality; this approximately coincided with a generational exchange at google and apple, too.
4. somewhat related, the exacerbation of wealth inequality in western countries is definitely not an argument that favours the largest corporations; also current renewed wariness towards globalization will do little to favour internet companies.

Looking at things under this lense, we can definitely say that 2018’s financial troubles arose after our collective change of sentiment, if not as a result of it.

The techlash was huge, and it caused ingent losses that some found remindful of a speculation bubble about to burst:

• Facebook experienced its biggest financial loss as a direct consequence of the legal investigations it went through. It was the biggest loss in market value in one day, going over 100 billion us$. By comparison, the largest sum lost by JP Morgan in one day during the global financial crisis of 2008, was less than 25 billion us$.
• Amazon losses weren’t directly related to a scandal, but it’s hard to dismiss the timing as coincidental, considering workers protests intensified through the year peaking around the black friday and christmas time. All together within a 6 months period was a much larger loss than what Facebook experienced.
• Apple’s case was a bit different, but still within the 3 factors explained above: the marked punished it essentially for having lost its innovative sparkle. It accused fenomenal losses after admitting sales weren’t going as well as they once were: within 6 months Apple losses amounted to the entire market value of Facebook, despite having invested 62 billions in buybacks in an effort to sustain the dropping share’s price.
• These major hits spread to many other lesser companies whose only fault was of having a lot in common with those larger brands and therefore being affected by similar market sentiment: Netflix lost nearly 50% of its value just to make an illustrious example.
• It surely didn’t help that around September the tension around a possible trade war intensified, causing further losses including about 20% in share value for brands of the likes of google, samsung, hp and salesforce, but each of the points above started months before September, in a climate not entirely optimistic, but not such as to justify capitulations of those sizes.

Whether the fear of a bursting bubble is legitimate or not is up for debate, however it is undeniable that IT has grown to become one of the most important pillars to our global economy, and seeing it shaking is not reassuring at a critical time time when UK’s Brexit has the potential to negatively impact an already weak European economy; and a time when the trade war between USA and China is impacting the economy of both countries as well as many others just while the Chinese economy seems already slower than usual.