This is the third installment in our COVID As a Catalyst series. You can read the introduction to the series here while our first topic, “The End of the Era of Good Macro?” is available here.”
With people forced into their homes and physical interaction limited by the coronavirus, technologies allowing people to convene over the internet—for work meetings, online classes, and even medical appointments—are now being utilized more widely. As users grow more comfortable with the software, experimenting with and sharing new best practices, they may discover more efficient ways to accomplish life’s common tasks, increasing the likelihood that the accelerated adoption of these technologies persists well after the pandemic ends.
BREAKING THE BARRIERS TO TELEHEALTH
Telehealth is one such technology. Though widely touted as a more efficient solution for everything from psychological therapy to the management of chronic conditions, its adoption had been hampered by a combination of status quo bias, a lack of reimbursement from health insurers, and state-specific licensing requirements.
However, as the pandemic has unfolded in the US, hospitals and other care centers have shifted services to telehealth to free capacity and limit the spread of the virus. To allow that to happen, Medicare and private insurers have begun to pay for a wider range of telehealth solutions. Once the pandemic subsides, it may be hard for these payers to discontinue reimbursements, potentially eliminating one barrier to more widespread adoption. While it may take time for the system to settle on the right reimbursement rates given telemedicine’s lower cost profile, both the precedent and infrastructure will be in place (Display).
Outside the US, the same trend has held. In China, the major conglomerates Tencent, Ping An, and Alibaba have poured resources into their telehealth solutions. More widespread telemedicine adoption could reduce healthcare costs and improve health outcomes worldwide.
Companies which are able to leverage this trend should benefit from a strong tailwind. In contrast, companies with revenues tied to the magnitude of healthcare spending or to the physical delivery of services that can be more efficiently delivered online will face headwinds.
Across all of these models, the importance of network effects—in which a service becomes more valuable to its users as it adds other users—could reinforce many of the same winner-take-all dynamics seen in other areas of software. It’s notable that in China, conglomerates are leading the way. Likewise, in the US, Epic Systems, one of the largest holders of US medical records, has partnered with Twilio to develop a telehealth solution.
HAS THE DEATH OF DISTANCE FINALLY ARRIVED?
Another trend dating back to the early days of the internet revolution is the rise of telecommuting, which people thought heralded the “death of distance.” While that transition hasn’t materialized as quickly as early proponents expected, it’s been steadily unfolding for decades. Improved connectivity has allowed more people than ever before to work remotely.
In 2017, Gallup reported 43% of employed Americans had worked remotely for at least some time. In 2018, US Census data reported over 5% of US workers were completely based at home. Data has shown that working from home is an attractive perk for workers and that it may even enhance worker productivity.
Now, as a result of the coronavirus, more workers have shifted to remote work. The videoconferencing app Zoom had 14 million monthly active users at the beginning of March. That rose to 173 million monthly active users at the end of May, a 12x increase (Display). The number of daily meeting participants rose even more and is now over 20x higher than its pre-pandemic levels. Other major connectivity platforms, from Microsoft Teams and Slack for messaging to Citrix Systems for remote computing, have also seen their usage increase substantially. Again, network effects remain central to these business models, suggesting these industries will similarly develop into oligopolies over time.
As with telehealth, looking at patterns in China may prove instructive. There, remote working app usage not only increased during the peak of their pandemic and lockdown but has actually continued to rise even as the country has returned to work.
Once the concept of remote work has proved effective for so many employees and their firms, it will likely continue to grow. Yet nothing can fully replace working together with your team. A lot of business is relationship-driven and nothing builds bridges between people and culture within an organization like in-person interaction.
Admittedly, some folks will need a respite from their homes and long to return to their offices by the end of this. But beyond that normalization period, we expect many people to opt to work from home more often than before—and to turn many previous in-office meetings and conversations into videocalls and chats.
We also expect more of this to be driven from the top than in the past. Indeed, at Bernstein’s Strategic Decisions Conference in New York—which hosted the CEOs and senior executives of over 100 leading companies—a common refrain could be heard. Many of these C-suite leaders indicated that post-COVID, they would look to offer more work-from-home flexibility.
Though we don’t expect offices or corporate travel to completely disappear, they will be much more vulnerable in the future than in the past. For instance, a number of executives at companies noted that they might make remote work arrangements permanent in some cases, downsizing their office footprints and costs in the process. That possibility underscores technology’s role in reducing inflation, which we highlighted in a previous installment of this series. How? Most businesses which reduce costs by trimming their office footprints will end up being forced by competition to pass on the lion’s share of those savings to their customers, making this a potentially important disinflationary force.
LEARNING A NEW WAY TO LEARN
The education sector has also been forced to abruptly pivot to online solutions, adopting technologies similar to those being used by businesses.
After decades of stigma associated with online education, it became reality overnight for students around the world. From Google classrooms to Zoom videoconferences, much of the US and world are now jumping headfirst into distance learning. In the US, at least 55.1 million students attending 124,000 schools have faced closures due to the coronavirus, with 48 states ordering or recommending closures for the remainder of the academic year. While these platforms can’t replace the social element of school—from hallway banter to extracurricular activities—they are trying to fill the academic void.
Teachers and professors are now experimenting and sharing best practices with each other for online coursework. Students are learning how to learn in this new way. When we do go back to normal, some of those lessons may live on, and with so many people experiencing online education, previous stigmas may fade. At the same time, many colleges and universities offering online courses now find their value proposition and pricing under attack, which may impact their tuition and with it, their operating models.
GENIE OUT OF THE BOTTLE?
Not everyone has benefited from the technological leap forward under the great shutdown. Lack of access to technology continues to exacerbate existing disparities, and underserved populations haven’t enjoyed the same latitude to see a doctor virtually, work from home, or learn online. Even those with pervasive access may not be completely sold. As people try new technologies in different settings, they may find they don’t work as well as traditional methods—Zoom has already seen a backlash for a number of reasons.
However, we believe the digital backbone is in place to allow these technologies to flourish and expect that this will commence a wave of more widespread adoption. We already expected usage of these technologies to accelerate. Now we believe the pandemic has pushed them to a permanently higher trajectory. That will have ramifications for how we live and work, for the strength of some major tech companies’ competitive advantages, as well as for the value of assets ranging from cloud computing data centers to commercial office buildings.
The views expressed herein do not constitute research, investment advice or trade recommendations and do not necessarily represent the views of all AB portfolio-management teams and are subject to revision over time.