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America’s technology giants are facing unfamiliar limits to growth

In the digital world, the laws of physics can be suspended on a programmer’s whim. Equally, that world’s corporate architects have seemed able to defy economic gravity. Since 2005 the digital share of American GDP has risen by a third, to 10%. America’s tech oligopoly—Meta, Alphabet, Amazon, Microsoft and Apple (maama, if you will)—has outpaced even that breakneck growth. Collectively, MAAMA’s revenues and profits have swelled by nearly 20% a year on average over the past decade, while America eked out nominal annual GDP growth of less than 4%. Covid-19 may have cramped physical lives, but it enriched digital ones—thereby also enriching big tech as never before.

This year gravity has asserted itself once more. The tech-heavy NASDAQ index is down by a quarter since January, half as much again as America’s broader stockmarket. Profitless not-so-big tech has been dragged down by anaemic revenue growth and high interest rates, which make the far-off earnings of firms like Snap look less valuable today. More surprising, despite generating piles of cash in the here and now, the giants are also feeling the tug of reality. On July 26th Alphabet reported its slowest quarterly sales growth since the bleak early months of the pandemic. Its share price rallied, though not enough to offset recent falls and only because expectations were even worse. A day later Meta said its sales fell year on year, for the first time ever.

America’s technology titans are suddenly having to contend with forces that have long plagued old-economy CEOs: gummed-up supply chains, protectionism, worker shortages and competition. For MAAMA, these constraints are something of a novelty. Its bosses had better get used to them.

One limit is geography, often forgotten in a world of seamless global supply chains and largely borderless cyberspace. In so far as the tech giants peddle physical bits and bobs rather than digital bytes, they are sharing in the pain of supply disruptions. In April, Apple (which like Amazon was due to report its results after we went to press) warned that its revenues would be $4bn-8bn lower than expected in the second quarter, chiefly because of supply-chain snags in China, where factories are locked down with unnerving severity every time a case of covid turns up. Ingenious inventory-management software has not spared Amazon—which, like conventional retailers such as Walmart, misjudged what shoppers wanted and when—from extra costs.

Barriers are being put up on the internet, too, as places from the European Union to India become more protective of their citizens’ data and of their own digital darlings. That is a worry for Alphabet, Meta and Microsoft, which, outside firewalled China at least, face few barriers to selling their digital services.

Another limit has to do with talent. Tech firms are not used to scrabbling around for the best programmers. However, having dislodged banks and consultancies as graduates’ dream employers, big tech is finding it hard to recruit. One reason is the sheer size of MAAMA’s collective workforce, which has grown nearly seven-fold in the past ten years, to 2.2m. The bigger the payroll the harder it is to replenish, let alone expand. Big tech also faces stiffer competition from other industries, all of which these days manifest a degree of techiness minus the controversies that have sullied big tech’s reputation.

The last limit is MAAMA’s markets. As businesses such as e-commerce revert to pre-covid growth rates, the pandemic looks less like the start of an era of endless digitisation, and more like a one-off step-change. As they become commonplace, tech offerings are behaving like other staples. As Alphabet and Meta show, digital ads, once thought immune to the business cycle, may be turning as procyclical as the offline sort.

Be it online ads or shopping, the cloud or smartphones, tech markets are more mature—and mature markets grow more slowly, especially when regulators are no longer ignoring them. In many areas incumbents’ fat margins are being competed down. Amazon, for example, is investing heavily in its advertising business, Alphabet’s forte; Alphabet, meanwhile, is spending billions to get a foothold in the cloud, which is Amazon’s.

The giants of tech may yet rediscover their reality-distorting magic. Amazon’s $3.9bn purchase this month of One Medical, an American health-care provider, is only the latest MAAMA effort to conquer one of the last remaining under-digitised markets big enough to move the needle for a trillion-dollar firm. They may once again conjure up an all-new market, as Apple did with the iPhone’s app economy and hopes to repeat with augmented reality. Until that happens, though, the era of big-tech exceptionalism is probably over. 

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