Predict
Published in

Predict

The Impact of the European Energy Stress on Big Tech

One billion of miss of revenues for software as services in Europe is a very big estimation and bet that could be wrong

image is taken from this article published on DW.com

Yesterday and I was at two fingers to get surprised and miss opportunity to write this Friday TECHsays Essay because all day long I was thinking that it was Wednesday to show you how I could be unaware of the time and date. I knew that yesterday was thursday mainly after the sunset by this smartphone repair professional whom I am after for him to repair the power issue of this Ipad that I would love to get up and running because I think it will help me be more productive at writing things for you because with it I will read more. I have spotted the correlation between my reading and my writing experience each one of them supports the other.

Once I was told by this phone repair professional that yesterday was thursdays, I promptly thought that I was late at writing this Friday TECHsays Essay and the Ipad went out our my mind which was mainly busy asking how I will gonna manage myself to get a topic and write an essay to publish this Friday July 22,2022 and it was Thursday 21, 2022 at 8:00 PM or more.

Here I am in front of this paper writing while I still don’t know about what this essay will be and my PC is playing this youtube video of this french talk show that is about the European union deciding to slow down energy consumption by calling the effort of consumers and enterprises due to the stress of the gas supply from russia.

Then I thought that this essay can be about this European energy stress but I had committed to write about technology then let’s make this Friday TECHsays essay about Technology and energy mainly about the impact of the energy stress of European countries on big tech companies principally American big tech companies for the sake of showing how global our world is because something that happens in one corner of it often impact other corners, what is more true when it’s about developed countries like european and American countries. Recall that before I started writing this essay, I had already written an article that is about climate change which is linked to energy but I was willing to write something new because this article about climate change was not intended to be part of this series of essays called Friday TECHsays Essay.

When the bill of energy increases this affects other bills, those that are the ones that are less needed and those that can make the energy bill less expensive. If I take the side of the consumer bot the European and American consumers, the level of price of energy is linked with the level of sales and adoption of other products and services because the rise of the price of energy decreases the buying power of consumers who use a strategy that funds products and services according to a given level of necessity and priority in their day to day life. Paying the home rent has more priority than paying the bill for video streaming services. This last statement is the one that connects this topic of energy with the topic of technology this is the core subject of this series of essays. Then I will try to explore the impact of the problem of Energy in European countries due to the were in Ukrain and this risk of supply of gas from Russia.

The first impact of the stressed European gas supply chain is that European families will have to adjust their spending according to this event and I am expecting that services related to entertainment to first be impacted because they are less important on the list of bills to pay. We can all agree that it’s more important to stay hot during the winter than to watch Netflix or other services like it. To be clear about the assumption that I made in the last sentence let me state it clearly. Services like Netflix will be in trouble in Europe because many subscribers will stop their subscriptions for absorbing the increasing price of energy mainly gas for staying hot. This loss of subscribers will have an impact on the job market because these services will lay off many European employees as well as American employees but for the American job market, you may already know that these services have started laying off people because Netflix laid off almost 3% of its staff.

this google trends chart of people looking to know of to stop their Netflix subscription could support this assumption of the rise of the cost of power affecting digital services because sing April and June 2020 the level of interest for these searches increased

A global market is like that. There isn’t one part of the world that is safe from an economical event happening somewhere else. We have already seen this during the subprime crisis which concerned the American market but spread all around the world making European countries also in trouble. That’s what we will see with this crisis of gas provisioning from Russia and that’s what I am actually trying to explore with this Friday's TECHsays Essay. The first basic insight from my basic knowledge of economics shows that it’s not the buying power of European families that will be affected but also the buying power of big and small private companies as well as the public entities like European governments and public companies because all of them will have decreased revenues that come from the decreasing buying power of consumers that affect the revenues of public and private companies which in turn affect the taxes collected by governments which also must spend more supporting critical core sector of activities. that’s like a domino effect, this effect that marketers are eager to exploit positively for making their products and services spread and I have been writing about this topic of the domino effect applied to book marketing. Because of this domino effect, all affected parts will act accordingly for example we are already y seeing European countries adopting measures for attenuating the rise of the cost of energy by asking families and companies to make some effort for saving energy like for store to decrease the usage of light in their stores. The first effect of this decreasing buying power of countries and public and private entities is the decrease of the level and volume of importations from America which means many American companies will see fewer revenues coming from European countries the example of NetFlix that I have provided above is just a simple example of an effect that is broadly affecting the American economy. We could sense this effect with recent data on the evolution of the volume of importations of European countries from America and the level of exportation of American companies to Europe.

Here you could see the level of importations of Europe from the USA, what you could notice is the effect of the coronavirus and that the level of importations started to increase by almost hitting 260billions but in 202 we are expecting less than in 2022

level of importations of European countries from the USA here

For showing you the effect of this decreasing buying power and the impact of the dynamics of this buying power on things like the level of importations, I have added the consumer price index for France(dot line). Recall that the Consumer Price Index (CPI) is a measure of the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services. Indexes are available for the U.S. and various geographic areas (source of the definition of CPI comes from the U.S. Bureau of Labor Statistics).

the dotted line shows you already that the buying power of European consumers is decreasing because the Consumer Price index is high.

But what are other examples of impacts on big tech companies ?

Big tech companies have been building big datacenters in Europe for supporting their growth in this region but as you have already seen that the European energy stress is affecting digital services like video streaming services than one like me who knows a little about how the digital ecosystem works could already expect that big data centers will see a decrease of revenues because all majors and small digital services that will see a decrease of the number of users are built on top of the could stack hosted on these big data centers. Then another impact of the European energy stress is a decrease in cloud spending, talking about cloud spending let’s see what is actually the evolution of the level of cloud spending in Europe, particularly in France which is a European country that could be used as a proxy

Revenue of the public cloud market in France from 2016 to 2025, by segment (in million euro)

You can see that this fact from statista is showing a rising level of revenues of public cloud, what is contradictory to the assumption that I am making about the negative impact of the European Energy stress on cloud revenues. Even if the level of cloud revenues in Europe grows, this growth will be less accentuated than what is estimated by this chart and I am more oriented toward a level of cloud revenues in 2022 that will be a bit less than the level of revenues in 2021. For this assumption to be realized the cloud industry should see :

240 (in million euro) loss of revenues for cloud infrastructure (EU)

282 (in million euro) loss of revenues for platforms as service (EU)

947 (in million euro)loss of revenues for software as services (almost a billion ) (EU)

These are big amounts of money. I expect a loss of almost a billion dollars of revenues for software as services in Europe because In my point of view many entrepreneurs and small companies will also stop some of their clouds as services subscriptions that are not critical to their core activities for absorbing the increase of the cost of energy like how consumers will do for digital services they are subscribed to. But don't take my words as granted because my estimation and assumption can all be wrong.

the decrease in could spending will be one of the outputs of the energy stress that European countries will l face. Who says decrease in cloud spending think about cloud companies like Microsoft, Google, and Amazon. Talking to amazon introduce us to the third spotted impact of the European energy stress that is somehow liked to the decrease of buying power I highlighted in the first spotted impact that was related to digital services like Netflix and this third spotted impact is about the consumer marker whose leader is actually amazon who is very likely to see a decrease of revenues in Europe due to this same decrease of buying power of consumers. As I have explained in the paragraphs above consumers have each a stick (I adopted the software engineering vocabulary) of things to pay and buy and home and energy bills are on the top of this priority stack that is simply a prioritized list of things to put money into. As the cost of energy increases, the objects of spending that are at the bottom of this priority list or stack will be more impacted and shopping is among these elements that are at the bottom of this list of spending lines that will see less money allocated to them and for those that have less buying power this could even impact the fridge’s bill what makes me wish, hope and pray for this difficult situation to end just right now and all my assumptions to be wrong past predictions. This war in Ukraine alond with the pandemic are part of what caused this energy stress accompanied by a soar in prices and a decrease of buying power of all economic unit of the world. Two simultaneous events that are very disruptive for all of us. Peace is what I am asking God to bring to this world and I am confident that He will because I had asked for the pandy and things are getting better about this virus then I could naively think that my praying was accepted with the praying of all believers like me. We human beings are so dependent of natural resources and almost all theories of economics have shown that scarcity of resources is correlated with prices. This is expressed by this sentence that economists use to throw at our face but I will translate this sentence into a simple algorithm that is here

If (Demand increases){

prices increase

} else { /* here demand increase is False, meaning it is stable or decreasing */

prices Decrease

}

You see that I am trying hare to stay into the our subject matter that is about technology because as I have said that technology is the core subject matter of this series of essays called the Friday’s TECHsays Essay. It seems like the tech industry will be more affected by this energy crisis because its the industry that have mores sources of revenues that come from this bottom of the stack of spending of consumers. Things like digital gadgets and even smartphones could likely suffer from this energy crisis if the situation remains until the end of the year during which these kinds of digital products were most sold. I hope that it will end before the end of this year even if I am not expecting an Iphone 14 for the new year.

Here is the end of this 5th Friday TECHsays Essays that is not good nor perfect but done. I have written it in a hurry because I had less time for it than I had for these past Friday’s TECHsays Essays.

PS: The positive side effect for America is that it’s shale gas will see rising adoption by the European market which could attenuate the loss in volume of exportations to Europe.

here are tweets I made while writing this essay

--

--

Get the Medium app

A button that says 'Download on the App Store', and if clicked it will lead you to the iOS App store
A button that says 'Get it on, Google Play', and if clicked it will lead you to the Google Play store
Diop Papa Makhtar

Diop Papa Makhtar

​Papa makhtar Diop is before anything a geek or a nerd or both if you want. Geek and nerd are now overused but they used to name a knowledge driven person.