22 Sep 2020 18:38 IST

Big Tech probably never dreamed it would get this big

They have grown so large that they are in trouble with governments round the world on issues such as tax and anti-trust

Google. Facebook. Twitter. Amazon. Apple. Sony. Microsoft.  Each company is a technology behemoth with near-monopolies in the industries it dominates. So lopsided is its market share and so absolute its control that an uninformed reader might pipe up, “YouTube, Instagram, and WhatsApp, each a giant in its own right, didn’t make your list - why not?”

They were omitted because Google owns YouTube; and Facebook owns Instagram and WhatsApp. There are several reasons for these companies’ dominant positions. First is the network effect. We use Facebook because others do, even if we may not like Facebook as much. In some ways, others determine how valuable Facebook is to us.

Second, these companies provide infrastructure-like services which are inefficient if there’s too much competition. There’s a reason that rail roads and public utilities such as water, gas, and electricity services are structured as monopolies.

Consider the business of search in which Google dominates. Search is a public utility. We search on Google dozens of times a day, get the information we want, and move on, never once clicking on a paid search result or sponsored listing. But the few around the world who do click on those context-based ads generate massive profits for Google, whose revenues last year were $160 billion.

Bing is an also-ran search engine and is only surviving because of Microsoft’s deep pockets. There simply is no room for a third search engine, let alone Bing.

High entry barriers

Third, the barriers to entry for newcomers are unbelievably high even for non-infrastructure-like product lines. One can’t build an aircraft engine business overnight to compete with Rolls Royce, GE, and Pratt & Whitney. Acquiring the know-how, the labour, the capital, the patents, and the customers are all incredibly difficult. Very few start-ups can enter such high entry-barrier industries. This is why SpaceX’s successful foray into the space business is so remarkable and unique.

Competing against high entry-barrier product lines is difficult even for the likes of Google, which dug deep into its rich cash vaults to promote Google Plus as a competitor to Facebook. But Plus failed miserably and Google had to abandon it a few years later.

For those who are wowed by the intellectual heft of these tech greats, some measure of caution is in order. All these companies became so big not because of organic growth, but through acquisitions. Their ingenuity originated more in the CFO’s office rather than in engineering or development.

Dominance in search

Google stands out in this regard. Nearly 25 years after its founding, it only exists because of its dominance in search. Every other line of business that it operates - YouTube, Android, DoubleClick, Motorola, Waze, and Fitbit - was an acquisition.

Microsoft too is a laggard when it comes to innovation. Its prime business divisions, thirty years later, continue to be its Windows OS, the Office suite, and the Xbox gaming system. Most of the technical accomplishments Microsoft is known for came through acquisitions - Nokia, Skype, LinkedIn, and this week, ZeniMax Media, the maker of video games.

For most of its history, Apple was a high-end computer maker. It was different because it controlled both the hardware and software of its machines. This business model constrained growth and it seemed to be nearly always in financial trouble. Until it came up with the iPhone. Today, Apple makes more money from its iPhone/iPad product lines than its Macs.

And there’s Twitter. Who would have thought that a text messaging service, which initially restricted posts to 140 characters so that message lengths would stay within SMS-limited technologies, could catch fire the way it did?

Amazon’s innovation

For sheer innovation, Amazon continues to stand out. While its cloud service, AWS, is an extremely sophisticated offering, its main business, retail, has been around for 2,000 years. Amazon’s genius was in rethinking how customers could shop and train them to fall in love with associated attributes during the buying process - convenience, speed, selection, speedy delivery, and customer service - to such a degree that price became secondary. Few people today buy on Amazon looking for great deals, although Amazon got its start by undercutting bookstores on price.

The unassailable positions that these companies have found themselves in have created numerous headaches. Governments around the world look to them as cash cows arguing that they don’t pay their fair share in taxes. Other governments are itching to find something wrong in their business models and flag non-compliance with privacy, safety, or labour laws. The regulatory and legal defence teams at each of these giants can rival their product management and engineering divisions — in size and influence within the companies.

 

 

 

Top row, Facebook CEO Mark Zuckerberg, right, Amazon CEO Jeff Bezos, second from right, and bottom row Google CEO Sundar Pichai, left, and second from left, Apple CEO Tim Cook, during a anti-trust subcommittee in Washington | Mandel Ngan   -  AP

 

 

 

 

 

 

 

The biggest headache is in the area of anti-trust. Each company so dominates its main product offering that its monopoly power is unquestioned. If YouTube shuts down a channel for “violating its policies,” that could result in immediate financial doom for the creative artist.

Epic Games is in an epic battle with Apple regarding distributing its Fortnite video game on the App Store. Apple has stopped distributing Epic’s main product, causing Epic and its millions of users great harm. Google, in India, took out the PayTm app from its Playstore for a few hours. Google offers a competing product, Google Pay, so how much of its decision related to PayTm was inspired by selfish concerns?

In the crosshairs

Twitter often finds itself in the crosshairs of conservatives because it tends to flag and take down tweets that “violate policy”. The problem is that many critics disagree with Twitter’s policies. For an app for which there’s no competition and one that is more like an infrastructure-like service that welcomes everyone to its platform, how should its policies be formulated, formalised, changed, and updated? Should its users have a say in the process?

And there are the employees who, privileged given the huge incomes that they earn, often nurse extreme activist and leftist views about public policy. The result is that few employees are happy with the delicate compromises that their companies have to make with so many stakeholders simply to survive. Employee revolts are common not for working or pay conditions but because employees do not agree with their companies’ business practices or public postures.

Big Tech never dreamed that it would get this big. Each company was started small to satisfy its customers and grow. Now, each company is realising that it cannot satisfy everyone — and probably privately wishes that it never got so big.

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