‘Big Tech’ or ‘the Tech Giants’ have been in the crosshairs of regulators for some time now, but judicial systems across the world look to be making a concerted effort to really turn the screw on Amazon, Alphabet (Google), Apple, Microsoft and Facebook in 2021.
The EU has been long been the trailblazer in holding these tech companies to account, famously fining Google €2.4 billion in 2017 on antitrust grounds. While nobody likes a fine of €2.4 billion, this is small fry for Alphabet, who had a cash pile of $26 billion at their most recent results. What will really move the dial for these enormous and extremely successful businesses is if the US justice system successfully lands a few shots on target.
So what is the latest on US legal challenges against Big Tech and what does this mean for investors?
In October 2020, the House Committee on the Judiciary released its Investigation of Competition in the Digital Marketplace, where they roundly criticised the Tech Giants and concluded:
"Our investigation leaves no doubt that there is a clear and compelling need for Congress and the antitrust enforcement agencies to take action that restores competition, improves innovation, and safeguards our democracy."
Building on this paper, five tech antitrust bills were published in June 2021 that the Judiciary Committee is due to vote on before these are bought to the full House. There has been so much coverage of these bills that I will use that as an excuse for not listing the full detail, but there are a few points that really stood out to me:
- Some of the proposals are draconian and I hope that these will not get far. The Platform Competition and Opportunity Act seems the harshest example of this, effectively banning Big Tech from any acquisitions of businesses that compete with them, or might be competition in future. The example of Facebook acquiring Instagram for $1 billion in 2012 is often cited for why such M&A should not be allowed, but this is heavily skewed by hindsight. Instagram was far from mainstream in 2012 (that’s why Facebook only had to pay $1 billion for it) and, like them or loathe them, it is Zuckerberg and co that brought Instagram to the masses. M&A is a vital cog of free markets and banning this for a select few businesses would be bad news.
- Platforms are so powerful that it will take an almighty crowbar to break them up. For example, if Big Tech were no longer allowed to offer their products on their platforms, then would Gmail be banned from all Android phones and Microsoft Office removed from Windows devices? The problem is that these platforms run so deep in our everyday lives and, I have to say, largely offer us excellent products, that there is a risk that customers lose if the lawmakers push too hard. Furthermore, if Amazon can’t sell their own brand products on their online store, why should Tesco be allowed to offer Tesco Finest in their physical stores?
- Definitions are a nightmare and we are going to need a new rulebook for Big Tech. This is over-generalisation, but it seems that there is a generational gap between the lawyers/politicians proposing these bills and Big Tech. The snappily named Augmenting Compatibility and Competition by Enabling Service Switching Act essentially says that platforms should allow consumers data to be ‘portable’ so that switching platforms can be an easy process that does not hamper the individual user. I have two issues with this: firstly, companies are always going to make it difficult to move to a competitor (have you tried changing energy supplier recently?!); secondly, how do you define data? If I asked Facebook for full definition copies of all my university photos on their platform (no thank you) to be sent to iPhoto, should they be required to do this? What about a record of any post that I have liked or shared in the last decade? It is a minefield (and also, no thank you!).
My points above might seem overly apologetic for Big Tech, but I do feel that, up until now, on balance they have been a force for good and for progress in our world. Where would we be without our iPhones? Most Millennials and younger would be literally lost without Google Maps and 2020 would have been far worse without Amazon’s amazing delivery network. It is, of course, correct that governments and regulators should look to challenge Big Tech and not allow their huge power to grow unchecked or without judgement. Standard Oil is the most famous historical example of where the Supreme Court judged a business to be in need of breaking up for the public good, split in 1911 into 34 separate companies, Exxon being the most famous offspring. It may well be that the end-game here is that one day Amazon is cracked open and that we will have to choose if we want to invest in Amazon Delivery, Amazon Web Services or Amazon Advertising, or, with Alphabet, do we prefer Google Search, YouTube or Waymo autonomous cars?
To be honest, I feel like investors would climb over each other to have a stake in most of the individual parts of these Tech Giants and that these could be perfectly successful companies in isolation. It feels to me like this breakup is a good few years off yet and that there are plenty of courtroom battles to be fought in the meantime. One thing is for sure and that is that it will be a lucrative decade ahead for lawyers in the technology space!
First seen in Trustnet