Stocks up, manpower down as big tech marches towards blockchain

Decentralised business models will inevitably be adopted as major players get tough

February 10, 2023, 12:02 PM

The holding company for Dubai Financial Market and Nasdaq Dubai will reduce its stake in Nasdaq from 15.5% to 10.8%

You may be wondering why tech company share prices are going up at a time when we are seeing huge layoffs of staff.

NASDAQ, the barometer for tech stocks, experienced its best January since 2001 – rising by 9 percent while the more traditional Dow has risen by 2 percent. Even bitcoin was up 38 percent.

And just look at some of the big tech share price increases in January: Apple up 11 percent, Netflix up 20 percent, Meta up 23.8 percent, Tesla up 40 percent, Alphabet up 12 percent, Amazon up 22 percent, Nvidia up 33 percent, to name but a few.

But at the same time many of these tech companies have laid off more than 150,000 employees. What’s the rub?

According to Gartner, worldwide IT spending is expected to grow by 5.1 percent in 2023, continuing its upward trend of the last few years.

There was an acceleration of technology spend during the coronavirus pandemic as enterprises invested in work-at-home systems, which included laptops, network infrastructure and video communication software.

The hangover from this is being felt now.

The return to office has only been partially taken up and enterprises are now trying to rebalance tech capacity and new hybrid working demands.

And faced with the prospect of an economic slowdown, enterprises are obviously cutting back.

The reduction in manpower is actually being matched by further optimisation of technology infrastructure.

This is likely to be because technology can fill the gap between fewer staff and increasing revenues through greater automation of processes.

Like technology, not all sectors are in a slowdown. Energy companies are reporting massive profits and large buybacks (Chevron and Exxon, for example).

They continue to invest in technology as a competitive differentiator and where it can be transformative to the industry.

One such technology is Web3. According to Future Market Insights, “the global Web3 blockchain market is projected to have a moderate paced CAGR (compound annual growth rate) of 44.9 percent during the forecast period. Demand for Web3 blockchain is anticipated to reach a high of $116.51 billion by 2033.”

Web3 refers to the new paradigm of decentralised business models which could underpin the internet, moving us away from current gatekeepers like Google and Facebook.

The first phase of the internet was characterised by open protocols allowing anyone to build applications, but this quickly gave rise to centralised models where user data (transactions, search, identity, scores) is captured, aggregated, analysed and sold to advertisers.

These lucrative businesses allowed governance to be kept behind a closed door.

New Twitter owner Elon Musk is among those challenging the status quo with tweets to his audience of 127 million people such as: “Should I step down as head of Twitter? I will abide by the results of this poll.”

This is a sign of the future. In a centralised model, Musk would approach shareholders if he wanted to know what his audience thought of his CEO capabilities.

Now he can directly approach customers, who may also include many shareholders.

Twitter is not decentralised but Musk’s approach has similarities to the Web3 blockchain model.

Rather than the CEO saying he will abide by the votes, blockchains execute decisions by using smart contracts that represent programmable computer code that automate outcomes based on inputs. No longer would such decisions be left to a chief executive.

Reengineering business models is no easy task but the disruptive movement towards Web3 and blockchain foundations is a question of when, not if.

Therefore, continued investments in digitalisation and, more specifically, blockchain infrastructure are likely to come good even in a weak economic environment.

Nish Kotecha is a serial tech entrepreneur and board professional. He is the chair and co-founder of Finboot