The large internet companies have long been producing huge revenues and continue to expand rapidly, strengthening their power. But many things have changed, especially in recent years: at the end of the decade that has seen them at the center of the changes in a large part of our habits and more generally in our companies, Google, Amazon, Facebook and other large platforms have to face how never before the attention of governments, politics, the judiciary and the media, which criticize their size and the power they have achieved. The debate around their very existence will affect an important piece of the world economy and may have consequences on our habits and on the way we use the Internet every day.
For years, the big tech companies have been able to expand thanks to the substantial lack of rules on the part of the United States government. It was believed that too many laws and regulations could harm their growth, compromising an industry that was still relatively young and dynamic for competition. Years later, that approach seems to convince both the political and judicial powers in the United States less and less, after an earlier growth of fears and interventions in Europe, inevitably ineffective.
Inquiries and surveys
Google, Facebook and Amazon, to name three of the largest companies, have become so huge and dominant that competition from other companies in the most profitable online sectors such as search engines, social networks, e-commerce and advertising management. For this reason, in the last couple of years the consensus between US Democrats and Republicans has increased – we are talking about American companies – about the need to examine the sector more carefully in search of any practices that prevent free competition.
The Federal Trade Commission (FTC), the US government agency that deals with competition, has initiated checks on Facebook regarding its position in the market and how it manages user privacy. Two House committees are working on competition, privacy, acquisitions and projects for digital currencies always linked to Facebook. The FTC is also involved in preliminary investigations on Amazon for competition and on Google for privacy protection. The Department of Justice is working on Google to search for any practices that are harmful to competition, while the Justice Committee of the Chamber is dealing with competition with regard to Google, Amazon and Apple.
Analyzes of this type, which can then lead to formal investigations proper, are complicated to carry out because they require collaboration between Democrats and Republicans, who have different interests related to technology companies (in principle or for trivial reasons of the presence of those companies in the states they represent). Big companies like Google and Facebook are also lobbying Washington to assert their arguments and try to influence the activity of lawmakers.
While the investigations carried out by Congress give companies some more leeway to change their performance, those involving the judiciary generally suffer less interference. The attorneys general of 50 states and territories in the United States launched an antitrust investigation against Google in September, mainly focused on the practices applied by the company in the online advertising sector. These initiatives could continue and expand into other areas, even if those of the Congress prove inconclusive.
Politics and “Big Tech”
The new course of investigations and verifications against the big tech companies will probably mark part of the electoral campaign for the 2020 US presidential elections. Meanwhile, the most radical candidates in the Democratic primary have made numerous statements on Google and Facebook, claiming that they have reached excessive magnitude and power. Candidate Elizabeth Warren, one of the favorites, argues that Facebook should be divided into smaller companies, separating it from Instagram for example, and that Google should separate from its YouTube.
Mark Zuckerberg, the CEO of Facebook, has said on multiple occasions that a breakup from Instagram would seriously damage his company, and is trying to persuade more moderate Democrats to avoid this possibility. Facebook is also working to integrate as much as possible the systems for exchanging messages on its social network with those of Instagram and WhatsApp, another of its applications that could cause some antitrust problems. An interconnected system, says the company, should make the exchange of messages between users more practical and secure, but according to many observers, it would above all make the various activities of the company inseparable, making it more difficult to separate its activities in smaller companies and independent.
Republicans, traditionally more reluctant to regulate the market, seem less interested in breaking up Facebook, Google and the others, but still maintain an extremely critical approach to their activities. They have long accused platforms of being closer to Democrats and of giving them more space and relevance online.
Squeezed between the interests of the two parties, companies struggle to find the right balance to conduct their influence activities. Further complicating the picture is the fact that US politics and government aren't the only forces putting pressure on big platforms and tech companies.
Media inquiries
Russian interference in the 2016 presidential elections, with the circulation of a large amount of fake news online to discredit Donald Trump's opponents, led to the US media (and not only) to deal with increasing attention to social networks and, more generally, to the large Internet platforms.
For example, a Wall Street Journal investigation raised many doubts about how Amazon manages its internal product search engine. The article argues that Amazon organizes search results to keep products that make the company more profitable in terms of revenue, thus making them more visible and accessible than others. Amazon has denied these allegations, claiming to simply display products based on how much they are requested and bought by its users, regardless of who the manufacturers are (the company sells several of its brands via the portal).
The New York Times instead published an interesting survey on the App Store, Apple's service for purchasing and downloading applications to be installed on iPhones and iPads. According to the newspaper, Apple would have put its apps in the first places in search results for months, in order to make them more evident and incentivize their use compared to similar applications produced by third-party developers. In this way, Apple would have favored the diffusion of some of its subscription services, such as Apple Music for music, to the detriment of competitors such as Spotify. The company admitted that the algorithms used tended in some cases to make its apps stand out more, claiming they changed them to make other developers' applications stand out more.
Overall, all the major US newspapers over the past three years have devoted increasing attention to major tech companies, focusing above all on social networks and their role in changing (for better or for worse) our societies. The investigations on Facebook have made it possible to discover serious cases of violation of user privacy, as in the Cambridge Analytica affair, or the use of solutions to influence the choices of subscribers, always in terms of privacy, with policies at least in contradiction with as required by the laws on the protection of personal data, starting with the new European Union regulation on the subject (GDPR).
For at least a year, many US newspapers and news sites have expanded their newsrooms by opening sections dedicated to the topics of technology, with their repercussions on society, politics and the economy. Among them CNN, NBC and BuzzFeed have hired industry-savvy journalists, while other newspapers have revised their internal organization to better follow the big platforms and their businesses. The surveys released in recent months are the result of these changes and mark a new way of narrating the innovations and the repercussions they have for society, with a much more skeptical and distant approach from the positivism that has long accompanied the stories around Silicon Valley.
New media attention is leading the big platforms to make greater efforts both in terms of public relations and in the way new products are conceived and announced. Apple, for example, for a couple of years has increased the guarantees in terms of privacy protection for its users, presenting itself as a more reliable alternative to Google and its Android, where part of the services are provided free of charge thanks to the advertising (and systems to track user activities).
Unicorns
Further pressure on the big platforms and more generally on the technology sector comes from investors, whose approach has significantly changed in the last year. With the prospect of a probable new economic crisis and a greater focus on cash flows, investment funds have become more cautious of US startups. The “unicorns”, that is, the promising companies with a valuation above a billion dollars, are viewed with greater skepticism, also in light of how some of them went on the stock market (IPO).
The most anticipated IPO of the year was that of Uber, a company with a rather controversial history and which has come to go public after numerous scandals, linked both to its internal management and to news cases involving the drivers of its similar service to taxis. Uber went public in May and lost nearly 11 percent of the value of its shares in one day, a record low in the history of US IPOs. A few weeks later, the company released its quarterly data announcing $ 1 billion in losses.
Uber continues to lose huge amounts of money and there is great skepticism that it will make its business model profitable in the coming years. The most anticipated IPO of 2019 disappointed, but according to several analysts it was useful in bringing many investors back to reality and taking a more sober approach towards “unicorns”.
Other startups, less established than Uber, have revised their plans by postponing entry on the stock exchange. The most striking case of recent weeks has been that of WeWork, a company that has tried to sell itself as innovative and technological, but which in reality simply rents premises for those looking for work spaces. After several scandals, its CEO had to resign and the stock exchange listing was postponed to the last one, further increasing the skepticism on the part of investors.
Behind WeWork was also SoftBank, the large Japanese holding company that has invested several billion dollars in startups in recent years. SoftBank owns approximately 80 percent of WeWork and has invested over $ 9.4 billion in the company, which could prove to be its worst investment. SoftBank has huge capital, but has invested in numerous startups in recent years that are now considered to be at risk. Also for this reason, other smaller investment funds have revised their strategies, rationalizing their activities and exposing themselves less to the market.
Competition
It is not clear what the consequences of this change will be for large platforms, which unlike many “unicorns” have their accounts in place and continue to produce huge profits every quarter. Microsoft has a market value of around $ 1.1 trillion, followed by Apple's $ 1 billion and $ 855 million Amazon's billions of dollars. Alphabet, the holding company that controls Google, is worth $ 831 billion, while Facebook is just over $ 500 billion. Their performance on the market and their cash flows are not in question for now, but they could be affected by the more cautious approach with which investors are looking for the “next big thing”, the small startup that will one day become as big as Google or Facebook.
The problem is that the current landscape does not seem to be very favorable for bringing out new companies, and there is no shortage of examples. Snap, the company that makes Snapchat, went public in March 2017 and has since halved its stock value. The company had some internal management issues, but most of all it struggled to hold its own against close competition from Facebook, which mimicked many of Snapchat's features within Instagram. The changes allowed Facebook to grow Instagram very quickly, eliminating any incentive for users to leave it to go look for something different on Snapchat.
Many analysts wonder if the enormous size reached by Google, Facebook and the others does not now constitute an insurmountable obstacle for companies that would like to compete, and if this does not lead to a reduction in supply and the possibility of innovating faster in the technology sector. The theme is felt above all outside the United States, starting with Europe, where except in very rare cases (Spotify, Skype), technology startups are unable to become competitive with large US platforms.
And in Europe?
Up to now a two-pronged approach has been followed in the European Union: on the one hand, encouraging the creation of new startups, with concessions and incentives on the other hand, severely punish companies (mostly US) that violate the rules on free competition. At the urging of the European Commissioner for Competition, Margrethe Vestager, the European Commission has imposed multi-billion dollar fines on Google and Apple, with other penalties of hundreds of millions of dollars for Amazon and for the US microchip manufacturer Qualcomm. Vestager, which has received the renewal of its mandate in the new European Commission, is carrying out further investigations to verify potential practices detrimental to competition by the large platforms.
The rules in Europe make it easier to produce sanctions against Facebook, Google and others, but according to several observers they also complicate the life of startups, which often do not have the necessary resources to stay in good standing and orient themselves in the bureaucracy. The recent entry into force of the new privacy rules (GDPR) required a considerable commitment on the part of the large platforms, which could still afford to spend a lot to comply, while leaving smaller companies active online and in difficulty. any sector.
On rare occasions, governments have had to deal with such large and powerful companies, with an unprecedented supranational presence and control capacity. These companies control a gigantic amount of money and, for better or worse, determine the performance of entire economies, employing thousands of people and often without having a precise idea of the consequences of their activities. The services they offer are mostly free and efficient, which makes them very popular among billions of people, for whom it is now unimaginable to think of a paid mailbox.
Although with difficulty, in the past governments have managed to dismantle and stem the monopolies that had formed in various sectors, making competition between companies more balanced. However, many analysts wonder if those same models can be applied today to companies that are so rich and powerful, and above all so popular with their customers. The lack of collaboration between political parties, which ultimately determine the laws that companies must comply with in parliaments, and the spread of populism could weaken efforts to keep large platforms under control, which have ample powers and resources to overcome any government decisions. Much will depend on the United States and their willingness to regulate a sector that, due to opportunity and ideological reasons, has so far been left essentially free to govern itself.
