June 2019 appears to have been the tipping point when the chorus of complaints that too few companies control too much of all human endeavor began to slide toward a broader call for some form of antitrust action. It’s an argument that’s been made for several years now: four huge companies – Apple, Google, Facebook, and Amazon – shouldn’t be able to run the world. They do, but I see cracks in the ramparts.
Big tech seems to have become too big to fail. Where would we be without any one of them? But, as we learned in the Great Recession of 2008, there is no such thing as “too big to fail”.
Restlessness about tech monopolies is emerging as a major issue in the early jousting for the Democratic presidential nomination. Wall Street, as usual, saw it coming. The shares of all four companies, stellar outperformers for years, have seen high volatility in the past few quarters. Among the many articles that have appeared recently, the Wall Street Journal called the gathering storm a “backlash against Silicon Valley.” It’s more complicated, potentially monumental, and beginning to look inevitable that market forces — as opposed to government intervention — will play the deciding role. “Too big to fail” by definition means “too big to adapt”.
The seeds of today’s techno-jungle were sown 35 years ago in a similar antitrust environment that resulted in the forced breakup of Ma Bell —AT&T (NYSE: T) —into seven independent companies. At the time, interest rates had spiked to nearly 20 percent, energy was expensive, and industrial companies dominated the economy. Today, cheap money has never been as abundant, we’re essentially energy self-sufficient, and technology companies dominate the world. But what looks to some like a solid phalanx of threats to privacy and innovation may turn out to be a techno-apocalypse in the making.
As I recently wrote here, Apple (NYSE: AAPL) has caught a bad case of complacency, recently raising prices on iconic devices without offering much in the way of innovation. Its core businesses are mature and Apple is no longer the leading-edge company it once was. A recent symptom: the company threw in the towel on its music streaming service, iTunes. Meanwhile, Wall Street has been voting with its shares. A number of top institutions — the so-called “smart” money — begantrimming their positions in the first quarter of this year: names like Susquehanna Financial Group, Goldman Sachs (NYSE: GS), Morgan Stanley (NYSE: MS), and BlackRock (NYSE: BLK).
Apple is reaping what it has sown over the years: vendor lock-in prices; designing laptops that users cannot repair themselves; designing its phones so Google Voice would not work; allegations of anti-competitive collusion with record labels; attempting to force journalists to disclose the sources of leaks about new products. This is not the behavior of a tech leader but the thrashing of a dinosaur trying to survive the big bang.
Google’s (NYSE: GOOGL) problems are even more complex: Complaints of “contrived and artificial distinctions” to avoid paying corporate taxes; manipulating search results to exclude competing ad platforms; copyright infringement in its Google Books and Library projects; and most recently a panoply of complaints about YouTube ranging from censorship to enabling hate speech and soft-core child porn. YouTube alone is a ball of string and it may well be that at some point Google will have no choice but to spin it off just to avoid an avalanche of lawsuits and settlements.
Meanwhile, a recent report in the Wall Street Journal suggested that the Justice Department is preparing for an antitrust investigation and that “people familiar with Google’s restructuring said the operation … had become outmoded after years of rapid global growth.”
Google shareholders should have a say in all this, but they don’t. The structure of Google’s shares are such that, by most estimates, founders Larry Page and Sergey Brin control 56 percent of the stockholder voting power through super-voting stock.
Facebook (NYSE: FB) has a huge privacy problem that has blown up recently with revelations that the company has been violating a 2012 consent decree with the Federal Trade Commission. There may be a huge multi-billion-dollar settlement in the future but according to recent news reports, some FTC officials are contemplating naming founder and CEO Mark Zuckerberg as a respondent in any litigation. The problem is so big, so complex, and so impossible to put back in the box that it’s hard to see how the company can weather the current storm without some sort of fundamental reorganization or breakup.
Finally there is Amazon (NYSE: AMZN), a company most of us use as the first source for online shopping and which has been cited for anti-competitive and monopolistic behavior. The company has been in an on-again, off-again scrap with Google over its competitive products (Google Home, Chromecast, etc.). It has been hit with withering criticism for working conditions in its warehouses, speculation that it is selling its facial recognition technology to US immigration authorities, and the flawed way in which it handled its search for a second headquarters.
Amazon’s business continues to thrive, but that’s because its Amazon Web Services subsidiary is hugely profitable. Last year AWS generated about half of Amazon’s operating income on about one-fifth the revenue taken in by the company’s e-commerce unit. Further, Amazon may look like an e-tailer, but it’s really a logistics and delivery service.
The controversies surrounding all four companies will soon enough demand resolution, and if any of them act as the public companies they are (rather than the personality-driven empires they behave like), the right thing to do for shareholders—and ultimately customers as well—will be to spin off the cloud services, the Instagrams, the YouTubes, and maybe even the iPhone into new companies that are focused and energized for innovation instead of domination.
Either way, fasten your seat belts. It feels like we’re in for a bumpy
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