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Article | 08 January 2021 | Investments
The titans of the US tech sector, household names such as Facebook, Amazon and Google, have been described as ‘too big to care.’ But the rush by regulators on both sides of the Atlantic to limit their dominant positions should now be ringing alarm bells. The threatened penalties, both fines and disposals, could cut these giants down to size. We take a look at the issues and the consequences.
As an example, the European Commission has taken aim at the ‘very large’ tech platforms, specifically those with more than 45 million customers. They are labelled ‘digital gatekeepers’, because their huge and expanding scale is keeping competitors out of the game. It’s become a global issue. Last year Google, Facebook and Amazon together grabbed more than 70% of all online advertising. In essence, they are not ‘in the market’ they have ‘become the market’.
Why does that matter? In the old world, market dominance meant control of pricing and fat profits. In the digital age this has little meaning, as many services appear to be provided free of charge. But are they? Users are in fact paying for these services with their personal data. It’s a very valuable commodity and one that the digital gatekeepers value highly. Control of consumers’ data brings even greater market dominance.
And it’s not only in the US and Europe that Big Tech is under scrutiny. In recent months the Chinese regulator has moved against its own giants, such as Alibaba and Tencent. The reasons are similar. Increasing concentration of online platforms, dominant market positions and an ever widening reach. Perhaps this is why the $37bn IPO of Ant Group, a technology vendor turned major player in online banking, was recently pulled.
So what happens to Big Tech next? At the very least investigations of business practices and acquisitions, possibly stretching back a number of years. If wrongdoing is found then financial sanctions are likely, including huge fines of up to 6% of annual turnover. In the extreme, forced divestments could break the companies up. It seems the digital gatekeepers now find their businesses and their profits under siege.