Congress' Big Tech Bluster
Delivered on 04 August 2020 by Justin Pyvis. About a 6 min read.
Last week the heads of every Big Tech company - Amazon, Apple, Facebook and Google - appeared before Congress to defend themselves against possible antitrust action. Long story short, despite ample evidence being tabled (1.3 million documents!) and 217 questions over 6 hours, the House Judiciary Committee's investigation is unlikely to amount to anything.
Why? Because there is still no evidence of monopoly, such as market dominance (properly defined) and consumer harm through the form of higher prices and restricted supply. If anything, Big Tech has provided people with more options at a lower price.
I know that the lack of anything concrete won't deter lawmakers but it should at least temper their expectations. Markets certainly believe the worst is over, with Big Tech's respective share prices barely changed following the hearing, being swamped by third quarter earnings reports released only a day later:
However, Google has problems
Mr Pichai’s foremost challenge is to prevent Alphabet from becoming what Mr Brin and Mr Page were so bent on avoiding—a “conventional company” that dies a slow death from lack of innovation and declining growth. The task is as delicate as the technology giant is gargantuan.
Today Alphabet is a conglomerate of businesses that sometimes appear to have little in common—a corporate planetary system or Googleverse, if you will. Commercially, its centre of gravity is Google itself, and particularly its online-advertising business. This generates 83% of the group’s revenue and all its profits.
Online advertising overall is far from a mature market, but growth in search ads, which continue to generate about 60% of Alphabet’s revenues, has slowed. In 2019 sales expanded by 15%, a healthy clip but considerably lower than the 22% a year earlier. General online search is also being “hollowed out” by specialised searches, says Mark Shmulik of Bernstein, a research firm. Mr Shmulik estimates that about 60% of product searches now start on Amazon (whose fast-growing online-ad business is already the world’s third-biggest behind Google and Facebook).
Although Mr Brin, Mr Page and Mr Schmidt remain Alphabet’s biggest individual shareholders—with 13.1% of shares and 56.7% of voting rights—a former senior executive says that the company is now run by a different triumvirate. Besides Mr Pichai it includes Kent Walker, senior vice-president of global affairs, and Ruth Porat, the finance chief poached from Morgan Stanley, an investment bank. Where Mr Brin and Mr Page were technologists and Mr Schmidt a technologist-manager, the new team are simply managers.
Google is now run by investment bankers and appears to be biting off more than it can chew in a million other areas as its core business, advertising, is being eroded. Will they notice in time? This is a bigger issue for Google than the Justice Department.
Success is by no means guaranteed
Jeff Bezos' prepared statement was excellent, and is example #5623 why success is by no means guaranteed:
Amazon's success was anything but preordained. Investing in Amazon early on was a very risky proposition. From our founding through the end of 2001, our business had cumulative losses of nearly $3 billion, and we did not have a profitable quarter until the fourth quarter of that year. Smart analysts predicted Barnes & Noble would steamroll us, and branded us “Amazon.toast.” In 1999, after we’d been in business for nearly five years, Barron’s headlined a story about our impending demise “Amazon.bomb.” My annual shareholder letter for 2000 started with a one-word sentence: “Ouch.” At the pinnacle of the internet bubble our stock price peaked at $116, and then after the bubble burst our stock went down to $6. Experts and pundits thought we were going out of business. It took a lot of smart people with a willingness to take a risk with me, and a willingness to stick to our convictions, for Amazon to survive and ultimately to succeed.
Note that Amazon has lost market share since COVID-19 hit. The digital world is brutally competitive.
Microsoft to buy TikTok
With a little help from the US executive:
President Donald Trump on Friday told reporters he will act soon to ban Chinese-owned video app TikTok from the United States, NBC News reported.
Trump made the comments while chatting with reporters on Air Force One during the flight back to Washington from Florida.
“As far as TikTok is concerned we’re banning them from the United States,” Trump said, calling the action a “severance.”
Trump did not specify whether he will act through an executive order, or another method. such as a designation, according to NBC News.
“Well, I have that authority. I can do it with an executive order or that,” Trump said.
Trump can't actually ban TikTok, but he can (and has) set the wheels in motion:
“These Chinese software companies doing business in the United States, whether it’s TikTok or WeChat — there are countless more . . . are feeding data directly to the Chinese Communist party, their national security apparatus,” Mr Pompeo told Fox News.
“President Trump has said 'enough' and we're going to fix it and so he will take action in the coming days with respect to a broad array of national security risks that are presented by software connected to the Chinese Communist party.”
Microsoft looks set to be the winner (provided the price is right):
[Microsoft will] move quickly to pursue discussions with TikTok parent ByteDance Ltd. of Beijing and aims to complete the negotiations by Sept. 15. The statement, the software giant’s first confirmation it was interested in acquiring TikTok’s U.S. business, said the deal talks also entail the app’s service in Canada, Australia, and New Zealand.
“Microsoft appreciates the U.S. Government’s and President Trump’s personal involvement as it continues to develop strong security protections for the country,” the company said in its statement.
It added it would ensure that the data of American TikTok users is transferred to the U.S., where it would remain. Microsoft said TikTok operations under its ownership would build on the popular user experience while adding privacy and security protections.
Apparently discussions were taking place prior to Trump's statement, which nearly derailed the process. What has amazed me this whole time is how successful TikTok has been in the United States even with its dubious links to the Chinese government and dodgy stance on privacy. The average person really, really doesn't care about those issues. National security though? Sure, because you don't actually need evidence.
Another question is, will Microsoft actually manage the acquisition properly? It famously botched video chat the last time it tried (Skype), despite have a 10-year head start over the competition. Might Microsoft's governance structures be too antiquated to manage a youth-focused, rising star in such a dynamic sector?
Australia bans news articles on social media
Not quite, but that is one possible outcome of this proposed law:
Facebook and Google will have to pay traditional news media to publish their content under a new code of conduct developed by the Australian Competition and Consumer Commission (ACCC) that could be implemented by the end of this year.
These media platforms could be liable for up to $1 billion per annum just for displaying news articles:
Mr Sims would not comment on how much revenue Google and Facebook would be forced to share under the code, saying the ACCC had a number in mind but the negotiating parties might have very different ideas, so he did not want to prejudice talks.
Nine, owner of The Australian Financial Review, has previously said it believes the number is about 10 per cent of local revenue – about $600 million based on 2018 numbers in the Digital Platforms Inquiry. News Corp has suggested the number is closer to $1 billion.
Why, you might ask? Lobbying by local media monopolists:
Media companies including News Corp Australia, a unit of Rupert Murdoch’s News Corp, lobbied hard for the government to force the U.S. companies to the negotiating table amid a long decline in advertising revenue.
If Big Tech play ball, this is just a protectionist subsidy for local media. But I don't think this will end the way News Corp thinks it will. Big Tech won't just hand over the $1 billion. If it goes ahead, the likes of Google and Facebook will stop showing news articles in Australia (a tiny market), News Corp's advertising revenue will be decimated and the media scene in Australia will become even more barren.
Issue 89: Congress' Big Tech Bluster was compiled by Justin Pyvis and delivered on 04 August 2020.