Tech Antitrust Effort Will Destroy Trust, Not Tech
“We’re from Washington, and we are here to help.”
A throwaway line from a bygone political era … but it still rings true and is still just as dangerous.
The New York Times reported Tuesday that lawmakers have collected hundreds of hours of interviews and scoured 1.3 million documents ahead of a sit-down this week with the chief executives of Amazon.com (Nasdaq: AMZN, Rated “C+”), Apple (Nasdaq: AAPL, Rated “B-”), Alphabet (Nasdaq: GOOGL, Rated “B”) and Facebook (Nasdaq: FB, Rated “B-”).
Some will make the case that big tech has been under attack for some time. They will point to a 2013 antitrust investigation into Alphabet that led to no meaningful changes.
All of this is true, yet it will not matter. Share prices for tech innovators are still headed lower.
First, make no mistake: Big tech is winning globally because companies like Amazon, Alphabet, Facebook and Apple have built irresistible ecosystems that customers love. With few exceptions, these companies are not harming competition — they are using customer loyalty and massive scale to stomp rivals.
They’re winning because they are good at what they do, not because of unethical business practices.
Amazon, for example, has been ranked first in customer service for all businesses for several years. The American Customer Satisfaction Index, according to a Forbes story, had the online giant ranked No. 4 in 2018.
And when Interbrand, an international brand-building firm, sought to determine the best global brands of 2018, it ranked Apple, Google and Amazon in the top three spots. Facebook was ninth.
There is some room for improvement, though. Clearly, it’s unfair for Amazon, Google and Apple to abuse their role as marketplace gatekeepers.
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Amazon routinely uses the data it collects from ecommerce trends to develop new products that compete directly with third-party sellers on its site. Google and Apple collect up to a 30% tax on downloads of mobile apps.
Facebook, like it or not, cornered the market on social media by building the first product that scaled globally. Once it had family and friends, it won the category. As far as I can tell, that’s not illegal.
However, this will not matter. Politicians, both Republicans and Democrats, are determined to scapegoat big tech for past elections, biases and motives far beyond simply making a buck for shareholders.
It plays well politically, but it’s bad policy. And it’s terrible news for investors.
It means the next Amazon, Alphabet, Apple and Facebook are in the crosshairs too. Ultimately, investors will want to pay less for revenue growth. They will see limited market opportunities because of regulation. Companies with better mousetraps will get lumped together with mediocre, legacy businesses.
Politicians are knee-capping American ingenuity.
The great irony is they’re likely to succeed where the Europeans and Chinese have failed. Socialist taxes and closed markets didn’t stop U.S. big tech, but a bunch of out-of-touch Washington elites just might.
The Times notes the hearing this week caps a 13-month investigation by the House subcommittee. The Federal Trade Commission is getting ready to take action against Mark Zuckerberg, chief executive at Facebook. The Justice Department is said to be near to filing a case against Google. And state attorney generals are proceeding with their investigation of Apple.
But here is the kicker and potential upside for investors: In the worst-case, break-them-up scenario, Amazon, Alphabet and Facebook are probably worth more as a sum of their parts.
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The cloud businesses Amazon Web Services (AWS) and Google Cloud would be very valuable standalone enterprises. And they might actually benefit by breaking the association with their parent. The same is true for Facebook’s Instagram and WhatsApp.
Dumb politicians are taking aim at big tech, but they will hurt the very companies they think they’re helping. They will make it more difficult for smaller firms to raise capital while not improving the status quo for either consumers or investors.
No wonder they call this process “anti-trust” — the harassment of successful tech, online retail and social media companies will only serve to reduce investors’ trust of free markets and governance.
Best wishes,
Jon D. Markman
