LAUSANNE: Even though ByteDance is closing in on its TikTok deal with Oracle and Walmart, the global technology industry is getting more confusing than ever.
The forced sale of TikTok and America’s threat to shut down WeChat last week represents an unprecedented attack on global connectivity, which has delivered wonders for the human race in recent decades.
But the seemingly unstoppable growth of Big Tech is in fact in danger of being pared back by interventionist politicians in many parts of the world.
THE TIKTOK SAGA
This has been illustrated throughout the TikTok saga. US president Donald Trump had threatened to ban TikTok in America, citing national security concerns, unless its US operations were majority owned by an American company.
But Beijing banned the sale of TikTok to American firms, even though the ban risked killing the short video app in the US.
So Oracle struck a deal with TikTok to become its “trusted technology provider”.
This deal is essentially a joint venture, allowing Oracle to review TikTok’s source code and software to ensure there are no backdoors that allow the Chinese government to access the data of US citizens, which is locally stored in the US and backed up in Singapore.
The outcome of the deal is uncertain and is being reviewed by the US administration. Beijing also holds the right to a veto.
The TikTok crisis is a warning that the past few decades of rapid global technology growth might be over, to the determinant of everyone.
The rise of the Internet has been the foundation for all recent technological breakthroughs, allowing an exchange of ideas and opening up of commercial opportunities across the world.
The spread of knowledge and ideas, for the first time in human history, is emancipated from libraries and archives.
Tech companies are able to invest precisely because people are connected. Inside corporate laboratories, researchers from US, Japan, China and India are all sharing the same source codes on open platforms. Exponential technologies don’t come without exponential collaboration.
The TikTok mess underscores how tech companies now need to spend more of their energy on not just building the best product, but on navigating political minefields.
This is what TikTok has had to do to avoid becoming a casualty in the new Cold War between Washington and Beijing, including ramping up investment in data storage outside of China in a failed attempt to appease America’s national security concerns.
THE ECONOMICS OF IT
Yet, that is not all that poses a threat to the growth of technology. With digital walls going up in many places, the global Internet is quickly becoming fragmented.
The tech sector’s economics however don’t compute for the balkanisation of broadband networks. With limited scale, investments in content production will shrink, services that were free will become expensive to provide and consume and access to the world will shrivel to limited local spaces.
In a geographically fragmented digital world, a market of billions of users will only be possible where there are billions of people — in China and India.
For the past few decades, per-capita income has been high enough in many economies for people to buy expensive technology - phones for US$1,000 or more and a wide range of accessories and services.
However, this can no longer be taken for granted by Big Tech. Rising unemployment and inequality in the pandemic recession depletes the spending power of large and, increasingly former, middle-class segments in the West and in China.
READ: Commentary: How Tencent became world’s most valuable social media company – and then everything changed
Advertising revenues have also declined as companies struggle to stay afloat from the disruption caused by the pandemic.
The rising use of technological solutions and artificial intelligence (AI) will further increase pressure on the labour market. If workers are being replaced their incomes will fall. The technological utopia without access, scale and income looks like dystopic suburbia.
BLACKLISTING IS THE WRONG APPROACH
Blacklisting enterprises, like the US has threatened to do with TikTok and WeChat, could become a debilitating plague that spreads around the world. A year ago the US government was drawing up its trade blacklists.
Most noticeable is the blocking of Huawei's access to semiconductor chips. Yet, such a ban has not only strengthened China’s determination to become technologically independent, US companies, like telecommunications products manufacturer Qualcomm, are standing to lose some US$11 billion in sales.
Viewing from the corporate boardrooms, blacklisting is lose-lose for everyone.
Torn between its American ally and a rising China, Europe will be drawn into this cold war soon. Europe and the UK are still making up their minds about what to do with Huawei, but it seems likely that there will be another avalanche of requests to terminate business with other companies caught up in trade spats.
This will ultimately increase red tape everywhere, further curbing the global ambitions of Big Tech and putting a straitjacket on innovation.
Our dream of a technological utopia risks being dashed by a new era of political intervention.
Howard Yu is LEGO Professor of Management and Innovation as well as the director of IMD's signature programme, the Advanced Management Programme. Patrick Reinmoeller is professor of Strategy and Innovation at IMD Business School in Switzerland and Singapore.
This commentary is part of a fortnightly CNA-IMD Business School series on leadership and business issues.