'Investors must understand that we're probably not out of the woods yet': McCreath
A large part of managing the economic disruption from the coronavirus crisis has been keeping businesses and individuals afloat amid the shutdown of large parts of the economy. Banks, landlords, the federal government, hospitals and workers have all chipped in to do their part. But one notable group of companies has been missing from this process -- large technology companies such as Amazon.com Inc. and Microsoft Corp. But they have a role to play as well, and they too now should offer relief to businesses.
The general idea behind the efforts so far is that in a pandemic like we've experienced, large parts of the economy need to be shut down to slow the spread of the virus and that the economic harm needs to be managed and mitigated. Companies and workers lacking income still have bills to pay. In response, banks, in some cases with government mandates, are letting customers go months without paying mortgage and credit-card bills. Landlords have offered relief to tenants unable to pay rent, and some businesses, such as Cheesecake Factory, have simply refused to pay rent. The federal government has provided loans to businesses to keep them solvent and avoid job cuts; for workers who have been laid off it has increased unemployment benefits to help them pay their bills. Many hospitals, meanwhile, have cancelled profitable elective surgeries to create more capacity for the surge in Covid-19 patients.
But large technology companies, which happen to be the most valuable and profitable enterprises in the world, have largely been left out of the relief conversation. To their credit a few, such as Cisco Systems Inc., have let customers defer payments on new products until 2021. But it's largely been radio silence from even bigger companies, and yet companies such as Amazon and Microsoft have an even more crucial role to play.
That's because in the digital economy, advertising and cloud-software companies are the equivalent of the landlords we're used to in the physical economy.
In the physical world, a business decides where it's going to locate to best serve its customers and signs a lease in a building. That lease and that space are what allows it to operate; the landlord is, in turn, hosting the business. For a company that operates virtually, there are similar dynamics but they're served by technology companies rather than by a physical landlord and real estate. The company's business rely on Amazon's AWS cloud service or Microsoft's Azure. For a retail company, rather than paying up for foot traffic on Fifth Avenue, they're pay for digital ads on Facebook Inc. or Google (Alphabet Inc.) and in that way buying customer traffic.
Right now we're in a crisis where landlords are feeling pressure to offer relief to their tenants. There's no reason why a company struggling to pay its bills should get a break from its bank and the federal government just so it has the money to pay its bills in full and on time to cash-rich tech companies that are worth hundreds of billions or even trillions of dollar The only difference is that the public is more focused on how banks respond in this crisis than how large tech companies do -- for now.
But that could change, particularly in the face of public pressure. We've seen Amazon address complaints about working conditions and pay in fulfillment centers in recent years. But we're only a month into a crisis in which many businesses that rely on cloud services provided by these companies are struggling to pay their bills; many face the unpalatable choice of cutting job or what they pay to fabulously profitable tech companies. They shouldn't have to make such a decision in the middle of a pandemic.
Large tech companies, arguably more than those in any other industry, are in the financial position to offer relief to their customers. It would be good business for them -- it's not great to watch large numbers of your customers go out of business in the middle of a pandemic -- and good politics for them as well. These companies have come under growing scrutiny during the past few years for their business practices, ranging from how they handle customer data and privacy to anti-competitive practices in their dealing with vendors and employees. Some of those anti-competitive instincts can be seen with Amazon squeezing participants in its affiliate marketing program since the onset of the crisis. What better way to foster goodwill than to help with the broader fiscal relief efforts now underway?
Either way, how they're dealing with customers struggling to pay bills right now deserves more scrutiny. Digital landlords are no different than physical landlords. It's time that we realized it — and that they acted like it.
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.