Should we break up big tech? That’s a question that’s being asked both politically and by tech companies themselves. A thoughtful article on the topic raises some good points, but I think there are both useful amplifications of those points the article makes, and some points that it doesn’t make that need to be considered.
The political and technology camps are looking at the issue from very different perspectives. The political problem with big tech is really about big ad sponsorship. People’s information, even their privacy, is compromised by companies who push for profits by improving ad targeting. The tech industry’s own questions center on whether innovation is being stifled by the control exercised by the market giants in the space.
The Boston University article points out that the legal basis for breaking up big tech is questionable, at least under current law, and that a decision to try could threaten shareholders unfairly, perhaps even compromising some pension funds and nest eggs seniors rely on. The legal question I leave to the lawyers. What I want to look at instead is the practicality, the value, and the impact of a decision to break up some of the biggest and most successful companies of our age.
I know a lot of people who are all for privacy, complete protection of personal information, suspension of all tracking, and so forth. Most of the same people say they’re not willing to pay for social media availability, for doing searches, or for viewing online content. We are addicted to free stuff, and the truth is that most don’t care very much about how the “free stuff” is really paid for. The business model of the Internet overall, even the players and their relationship with each other, is hazy in the minds of the great majority of Internet users.
The fact is that online stuff costs money, which means somebody is paying, which means that somebody is getting value from the “free” experience in some way. That way is usually advertising. Just as network TV is paid for by ads, so is much of our online experience. Ads are successful because they work, and they work best if the ads are presented to actual prospective buyers, at the right time when they’re considering a purchase. This is why web companies gather user information, why if you search for a product on Google, you’re likely to suddenly see ads for that product popping up on your news and weather pages.
We have a perfect and absolute solution to gathering personal data and tracking our activities. Pay for what we want online instead. Obviously that’s not going to happen, and it’s useful to look at this extreme-case example because it means that the richness of our free online experiences is directly related to what we decide to surrender. I suspect, based on my own contacts, that any attempt to limit big tech’s personal information-gathering would lose support if online experiences were impacted.
Your news and weather sites are going to show you ads, or you won’t see the news or weather. If they show you random ads with no real connection to your interests or needs, they’ll get paid less for them and thus show you more ads to increase their revenue. What works best for you?
The article makes another very important point, which is that web firms have an “inverted value” model, one that encourages others to create stuff by making that stuff more accessible. How many web sites would there be without search engines to find them when we’re looking for a product, service, or information? If we had to know the URL for everything we saw and did online, we’d have a poor (even impoverished) Internet.
Amazon isn’t a social media company, but the same arguments can be made for it. Amazon promotes what you likely want to buy, because it’s more relevant for you and more profitable for Amazon. If Amazon couldn’t track your interests, they’d still show you stuff just as your news and weather sites would. Likely more of it, again because the untargeted stuff is less valuable. Your choice?
Amazon is a kind of bridge company here, because it’s cited by tech companies as an example of somebody who’s stifling innovation by swamping out new competitors in its space and by politicians because of the impact it has on storefront retail. Does the “Amazon is too big” argument stand up?
I remember the Sears Catalog. We got it at home when I was a boy, and I spend a lot of time browsing it and wishing I had the money to buy what I found. We don’t have Sears Catalogs today; they were swamped out by storefront retail in the form of strip and facility malls. Retail economic evolution, in short, made them a casualty. Online retail puts the same kind of pressure on storefronts as storefront proliferation put on catalog sales. If storefronts fail, it will be because the buyer prefers an online model.
But there is a problem here. A bunch of storefronts compete with each other. A single giant online retailer can essentially destroy competition. It’s relatively easy to open a hardware store, but very difficult to open an Amazon competitor. The bigger Amazon gets, the harder it is to create competition, and if all other retail avenues are closed by Amazon’s power, who then protects consumers against predatory pricing?
The same argument could be made for cloud computing. A giant cloud provider has economies of scale, name recognition, and other benefits that are very difficult to match if you’re just getting into the cloud business. Does an Amazon kill off innovative cloud companies?
Perhaps, but GM sells a lot of different car brands and nobody is breaking it up. There’s a value in economy of scale, and generally the theorists have postulated that the “optimum” market has three competitors. We have more than three online sellers (Amazon and Walmart are the largest, but nearly every major storefront business maintains a web storefront too).
Then there’s the VCs, who firmly believe that startups need exit strategies that earn big paydays for founders and investors. Who buys up the startups? Those big companies we’ve been talking about. Without an acquisition exit, the only option is an IPO, and that would be much more difficult. If the innovation in a market is related to the number of startups, you could argue that big companies who buy startups are promoting innovation.
Or you could argue they’re stifling it. Are companies buying up innovative startups to promote their innovation or ensure it never makes it to market? Look at the record of M&A by the big networking companies and you’ll see that most startup acquisitions they make don’t get to market, or at least don’t seem to make an impact. Could this be a buy-and-kill strategy in action?
I think that the “break-up-big-tech” argument has three flaws. First, the main point the article cited, which is the impact on shareholders. Second, the problems we have with privacy are problems with the ad sponsorship business model, not the firms that implement it. Finally, even if we accept either the privacy or innovation arguments and the consequences of our accepting them, it’s far from clear that breaking up big tech would actually do anything.
We almost certainly need to look at the way we regulate online business. We may need new laws, and we may eventually have to apply anti-trust measures to current tech giants. Whatever we do, we have to do thoughtfully and not fall prey to slogan-engineering.