Economy

GAFA Go Home: America's Tech Giants Brought Down To Size

The digital behemoths Google, Apple, Facebook and Amazon have long sold dreamy ideals. In reality, their business models are very conventional. Their extraordinary power is founded solely on their digital leverage.

GAFA's power boils down to the question of a 'digital paradise'
GAFA's power boils down to the question of a "digital paradise"
Jean-Marc Vittori

PARIS — Like gods returning to the mortal sphere, the past months have seen Google, Apple, Facebook and Amazon, known together under the acronym GAFA, lose their luster. Just the news of Jeff Bezos's divorce pushed investors to question Amazon's future. Apple declared a basic profit warning which, for Apple, isn't so basic after all, as they haven't taken such a step since 2002. Facebook can't stop apologizing for selling its clients' information. Here in France, officials like Xavier Bertrand, head of the northern Hauts-de-France region, are looking to fiscally "twist the arms' of these digital superstars.

The blow has been even worse on the stock exchange, where GAFA are now the four horsemen of the apocalypse. Since reaching their summits last summer, the total market value of the four companies has fallen by almost $1 trillion. Apple alone lost nearly $400 billion, a staggering downfall considering the company's extraordinary rise as the first to break the $1 trillion capitalization threshold. It seems the inscrutable smoke screen wafting around GAFA is beginning to dissipate.

GAFA are now the four horsemen of the apocalypse.

Investors, despite a reputation for being cold rationalists, love to be told a good story. They buy into these narratives as they do with the shares themselves, and these firms have been spinning fantastic yarns. Microsoft showed them the way in the 80s: Bill Gates's product was supposed to run computers worldwide with not just an operating system, but the building blocks of their use: word processors, spreadsheets, internet browsers, electronic messaging, etc.

We now know that the incredible power of Microsoft didn't come from exceptional know-how so much as its iron grip on intellectual property. Their source code was more guarded than a patent for a new pharmaceutical molecule, barring other companies from offering adapted products. In between, they built the biggest fortune in the world.

GAFA went even further, each selling a digital paradise in their own way. While Apple marketed itself as the world leader for information-centric electronic products, Facebook touted a perpetual connection with all of your friends and family. Amazon boasted a universal retail business with quasi-instantaneous delivery and Google offered free, immediate access to all the information and knowledge in the world with the advent of immortality as a bonus.

Even if the emperor has no clothes, he still reigns supreme.

The reality is much more prosaic. GAFA repurposes very basic models and places them in a whole new stratosphere thanks to the digital boom. Apple is simply a telephone manufacturer (although the actual fabrication is done by subcontractors while Apple focuses on concept and sales). Google reinvented the Yellow Pages for the digital age. The same goes for Amazon, the modern version of mail-ordering. Facebook probably has the most original model, although it drew heavily on the already-established structures of free media.

The American tech giants now stand naked, which doesn't prevent them from having new stories to tell. Amazon continues to impress with its leadership in cloud computing, which is nothing more than warehousing (except with data instead of merchandise). Apple does one better by bragging about its shift towards services… exactly like IBM in the 1990s.

But even if the emperor has no clothes, he still reigns supreme. As global behemoths, GAFA hold onto their dominant position. Jean Tirole, the president of the Toulouse School of Economics and Nobel laureate of economics for his analysis of market power, explained the two sources of their ultra-strength in a recent article. First, they grow because of a "network externality" (it's better to connect with others if you stay in one network, like Facebook). Then, the digital aspect allows for enormous economies of scale, and the returns can bringer ever higher growth. "The digital economy almost inexorably creates ‘natural monopolies,"" explains Tirole.

The American tech giants now stand naked.

The economist points to four areas that need better regulation: competition, labor law, privacy protection and taxation. Courts in developed countries frequently see cases involving work contracts, like the recent Uber case in France. Respecting privacy protection is at the heart of the new European data protection rules that came into play in May 2018.

It's even more complicated for the two other categories, as their legal framework was created 100 years ago (the end of the 19th century for antitrust laws, the 1920s for international taxes). Both need to be rewritten. In the meantime, states are cobbling together policies. On the fiscal side, France wants to tax GAFA's sales revenue in the face of a hesitant Europe. In terms of monopolies everything needs to be redone, starting with some serious reflection on policing competition in the digital era. And it needs to be done with an alternative method than the one inscribed in the preamble of the 1946 French constitution, stating: "All property and all enterprises that have or that may acquire the character of a public service or de facto monopoly shall become the property of society." Even if the fog around GAFA is lifting, these companies continue to hold too much power.

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Future

7 Ways The Pandemic May Change The Airline Industry For Good

Will flying be greener? More comfortable? Less frequent? As the world eyes a post-COVID reality, we look at ways the airline industry has been changing through a pandemic that has devastated air travel.

Ready for (a different kind of) takeoff?

Carl-Johan Karlsson

It's hard to overstate the damage the pandemic has had on the airline industry, with global revenues dropping by 40% in 2020 and dozens of airlines around the world filing for bankruptcy. One moment last year when the gravity became particularly apparent was when Asian carriers (in countries with low COVID-19 rates) began offering "flights to nowhere" — starting and ending at the same airport as a way to earn some cash from would-be travelers who missed the in-flight experience.

More than a year later today, experts believe that air traffic won't return to normal levels until 2024.


But beyond the financial woes, the unprecedented slowdown in air travel may bring some silver linings as key aspects of the industry are bound to change once back in full spin, with some longer-term effects on aviation already emerging. Here are some major transformations to expect in the coming years:

Cleaner aviation fuel

The U.S. administration of President Joe Biden and the airline industry recently agreed to the ambitious goal of replacing all jet fuel with sustainable alternatives by 2050. Already in a decade, the U.S. aims to produce three billion gallons of sustainable fuel — about one-tenth of current total use — from waste, plants and other organic matter.

While greening the world's road transport has long been at the top of the climate agenda, aviation is not even included under the Paris Agreement. But with air travel responsible for roughly 12% of all CO2 emissions from transport, and stricter international regulation on the horizon, the industry is increasingly seeking sustainable alternatives to petroleum-based fuel.

Fees imposed on the airline industry should be funneled into a climate fund.

In Germany, state broadcaster Deutsche Welle reports that the world's first factory producing CO2-neutral kerosene recently started operations in the town of Wertle, in Lower Saxony. The plant, for which Lufthansa is set to become the pilot customer, will produce CO2-neutral kerosene through a circular production cycle incorporating sustainable and green energy sources and raw materials. Energy is supplied through wind turbines from the surrounding area, while the fuel's main ingredients are water and waste-generated CO2 coming from a nearby biogas plant.

Farther north, Norwegian Air Shuttle has recently submitted a recommendation to the government that fees imposed on the airline industry should be funneled into a climate fund aimed at developing cleaner aviation fuel, according to Norwegian news site E24. The airline also suggested that the government significantly reduce the tax burden on the industry over a longer period to allow airlines to recover from the pandemic.

Black-and-white photo of an ariplane shot from below flying across the sky and leaving condensation trails

High-flying ambitions for the sector

Joel & Jasmin Førestbird

Hydrogen and electrification

Some airline manufacturers are betting on hydrogen, with research suggesting that the abundant resource has the potential to match the flight distances and payload of a current fossil-fuel aircraft. If derived from renewable resources like sun and wind power, hydrogen — with an energy-density almost three times that of gasoline or diesel — could work as a fully sustainable aviation fuel that emits only water.

One example comes out of California, where fuel-cell specialist HyPoint has entered a partnership with Pennsylvania-based Piasecki Aircraft Corporation to manufacture 650-kilowatt hydrogen fuel cell systems for aircrafts. According to HyPoint, the system — scheduled for commercial availability product by 2025 — will have four times the energy density of existing lithium-ion batteries and double the specific power of existing hydrogen fuel-cell systems.

Meanwhile, Rolls-Royce is looking to smash the speed record of electrical flights with a newly designed 23-foot-long model. Christened the Spirit of Innovation, the small plane took off for the first time earlier this month and successfully managed a 15-minute long test flight. However, the company has announced plans to fly the machine faster than 300 mph (480 km/h) before the year is out, and also to sell similar propulsion systems to companies developing electrical air taxis or small commuter planes.

New aircraft designs

Airlines are also upgrading aircraft design to become more eco-friendly. Air France just received its first upgrade of a single-aisle, medium-haul aircraft in 33 years. Fleet director Nicolas Bertrand told French daily Les Echos that the new A220 — that will replace the old A320 model — will reduce operating costs by 10%, fuel consumption and CO2 emissions by 20% and noise footprint by 34%.

International first class will be very nearly a thing of the past.

The pandemic has also ushered in a new era of consumer demand where privacy and personal space is put above luxury. The retirement of older aircraft caused by COVID-19 means that international first class — already in steady decline over the last decades — will be very nearly a thing of the past. Instead, airplane manufacturers around the world (including Delta, China Eastern, JetBlue, British Airways and Shanghai Airlines) are betting on a new generation of super-business minisuites where passengers have a privacy door. The idea, which was introduced by Qatar Airways in 2017, is to offer more personal space than in regular business class but without the lavishness of first class.

Aerial view of Rome's Fiumicino airport

Aerial view of Rome's Fiumicino airport

commons.wikimedia.org

Hygiene rankings  

Rome's Fiumicino Airport has become the first in the world to earn "the COVID-19 5-Star Airport Rating" from Skytrax, an international airline and airport review and ranking site, Italian daily La Repubblica reports. Skytrax, which publishes a yearly annual ranking of the world's best airports and issues the World Airport Awards, this year created a second list to specifically call out airports with the best health and hygiene standards.

Smoother check-in

​The pandemic has also accelerated the shift towards contactless traveling, with more airports harnessing the power of biometrics — such as facial recognition or fever screening — to reduce touchpoints and human contact. Similar technology can also be used to more efficiently scan physical objects, such as explosive detection. Ultimately, passengers will be able to "check-in" and go through a security screening anywhere at the airports, removing queues and bottlenecks.

Data privacy issues

​However, as pointed out in Canadian publication The Lawyer's Daily, increased use of AI and biometrics also means increased privacy concerns. For example, health and hygiene measures like digital vaccine passports also mean that airports can collect data on who has been vaccinated and the type of vaccine used.

Photo of planes at Auckland airport, New Zealand

Auckland Airport, New Zealand

Douglas Bagg

The billion-dollar question: Will we fly less?

At the end of the day, even with all these (mostly positive) changes that we've seen take shape over the past 18 months, the industry faces major uncertainty about whether air travel will ever return to the pre-COVID levels. Not only are people wary about being in crowded and closed airplanes, but the worth of long-distance business travel in particular is being questioned as many have seen that meetings can function remotely, via Zoom and other online apps.

Trying to forecast the future, experts point to the years following the 9/11 terrorist attacks as at least a partial blueprint for what a recovery might look like in the years ahead. Twenty years ago, as passenger enthusiasm for flying waned amid security fears following the attacks, airlines were forced to cancel flights and put planes into storage.

40% of Swedes intend to travel less

According to McKinsey, leisure trips and visits to family and friends rebounded faster than business flights, which took four years to return to pre-crisis levels in the UK. This time too, business travel is expected to lag, with the consulting firm estimating only 80% recovery of pre-pandemic levels by 2024.

But the COVID-19 crisis also came at a time when passengers were already rethinking their travel habits due to climate concerns, while worldwide lockdowns have ushered in a new era of remote working. In Sweden, a survey by the country's largest research company shows that 40% of the population intend to travel less even after the pandemic ends. Similarly in the UK, nearly 60% of adults said during the spring they intended to fly less after being vaccinated against COVID-19 — with climate change cited as a top reason for people wanting to reduce their number of flights, according to research by the University of Bristol.

At the same time, major companies are increasingly forced to face the music of the environmental movement, with several corporations rolling out climate targets over the last few years. Today, five of the 10 biggest buyers of corporate air travel in the US are technology companies: Amazon, IBM, Google, Apple and Microsoft, according to Taipei Times, all of which have set individual targets for environmental stewardship. As such, the era of flying across the Atlantic for a two-hour executive meeting is likely in its dying days.

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