Elizabeth Warren, one of the politicians who announced intention to run for the Presidency in 2020, released a blog post today outlining her plan to break up technology companies, if she is elected.
It’s ridiculous in my opinion.
I totally agree with Senator Warren on the role of promoting competition, because 1) it’s good for small-and-medium sized businesses; and 2) more importantly, it’s good for consumers. When there is competition to earn consumers’ money, it’s the consumers who reap the benefits.
Senator Warren’s whole piece seems to focus only on the first point above and neglect the second one, which in my opinion is the more important between the two. In her blog post, the Senator had a bolded claim that reads: “How the new tech monopolies hurt small businesses and innovation”. It depends on which industry she was referring to. It can be argued that Google’s monopoly can stifle any search engine startups, but it’s unfair to imply that Google can threaten in manufacturing industries and many others that are not where Google operates.
She accused tech powerhouses to use M&A to kill competition. Without Google, would Android and millions of users around the world have an established alternative to Apple today? One of the reasons why companies do M&A is to gain capabilities in a short amount of time. It’s like when you don’t know speak Japanese, instead of spending easily a decade to learn the language, you can hire somebody from Japan tomorrow and start doing business. The same thing applies to companies. Rather than spend money and years on R&D without guaranteed success, companies can acquire the capabilities available on the market quickly and reduce the risk of missing out strategic opportunities. The acquired companies can leverage resources at the acquirers to evolve to the next level. There is an argument to be made about Instagram & Facebook, Disney and Marvel, VMWare and Nicira.
Here is what she had to say on marketplaces
Using Proprietary Marketplaces to Limit Competition. Many big tech companies own a marketplace — where buyers and sellers transact — while also participating on the marketplace. This can create a conflict of interest that undermines competition. Amazon crushes small companies by copying the goods they sell on the Amazon Marketplace and then selling its own branded version. Google allegedly snuffed out a competing small search engine by demoting its content on its search algorithm, and it has favored its own restaurant ratings over those of Yelp.
There is some truth in what she said, but selling private labels and running a marketplace are two different things. If the private labels, as in the case of Amazon, are crappy, Amazon won’t be able to sell them. If Google-favored content isn’t in the best interest of users, they won’t consume it. Functioning as a marketplace, Amazon and Google generate revenue by offering a marketing channel and logistics help to vendors. Small businesses can sell goods on Amazon without worrying much about building a supply chain on its own. For many businesses, Google is the best way to reach online users. I can buy in the claim that these tech companies can be unfavorably biased to vendors which sell competing services/products, but the tech firms do also help a lot of other small guys.
Here is another point she made:
Weak antitrust enforcement has led to a dramatic reduction in competition and innovation in the tech sector. Venture capitalists are now hesitant to fund new startups to compete with these big tech companies because it’s so easy for the big companies to either snap up growing competitors or drive them out of business.
Having big techs swallow startups IS an exit venture capitalists want to recoup their investments. I don’t know if she noticed, but there have been quite many VC funds that have one billion dollars or more. This argument is pretty shaky at best.
She threatened to unwind these mergers and acquisitions if she is elected:
Amazon: Whole Foods; Zappos
Facebook: WhatsApp; Instagram
Google: Waze; Nest; DoubleClick
I can see the point behind Facebook – WhatsApp – Instagram, but I honestly don’t know her rationale behind the other two. Amazon doesn’t have a monopoly on selling shoes online just because they acquired Zappos, not does it have monopoly on groceries just because of Whole Foods. Walmart is fighting back really hard and other retailers such as Target is also expanding their footprint because they embraced the digital trend to compete with Amazon. On the other hand, yes Google has the monopoly in search, but DoubleClick is NOT all the reasons for that monopoly. And what do Waze and Nest have to do with it? Also, Google won because it offered the best and fastest search to users. Take it apart and what would that do to users?
Don’t get me wrong. I am in favor of the RIGHT regulations to keep tech companies in check. We need to step up our game to protect users’ privacy. It’s just not any citizen’s job to write regulations. That’s why we elect politicians.
The whole blog post is not a well-thought-out piece on the topic. If she really wants to break up competition, look at the airlines. Look at the credit score companies. Look at the pharmaceuticals that have MONOPOLIES over drugs for 10-20 years. How many companies do you know produce airplanes? Boeing and Airbus, the list ends there for me and likely many others. How about Comcast, AT&T and Verizon?
To tackle this problem, it’s important to look at it from different perspectives. Tech corporations are not perfect, but it will be unfair just to look at their faults and ignore the benefits they bring to our lives.