The taming of the few

Apple, Amazon, Alphabet (Google’s parent company) and Facebook have all delivered stunning returns for investors in recent years. As such, commentators like David Teece, a professor at UC Berkeley’s Haas School of Business, see little need for regulators to get involved in taming Big Tech. He says if the opportunity to compete is kept wide open, market forces will take care of dominance as smaller companies are more entrepreneurial and nimbler.¹

Big Tech, big problem

Others are less convinced. According to Atlantic Equities technology analyst James Cordwell, there is now a widespread feeling that Big Tech is a big problem. But authorities need to decide whether to use legislation to try to foster more competition or instead accept dominant online platforms as natural monopolies and regulate them as such. Whichever method they choose, taming Big Tech will not be easy.

However, it is difficult to know whether new legislation would help, given the difficulty regulators have defining the markets in which companies operate.

The fact these businesses are complex, hard to understand, and evolving rapidly will make it doubly difficult to draft effective legislation that stands the test of time.

Data protection

The General Data Protection Regulation (GDPR), introduced in Europe in 2018, provides a lesson. Although widely considered the strictest and most far-reaching data protection and privacy law ever passed, ironically it could strengthen the biggest players’ position.

Some EU policymakers believe some Big Tech companies might need to be split up if they continually violate the spirit of the rules.² But any attempt by the EU to break up a large US tech company could provoke a backlash in Washington were it to be seen as an effort to advantage European companies, or likely to increase the relative power of a Chinese rival.

Then again, the threat of breaking companies up is coming from the other side of the Atlantic, too. In December 2020, the Federal Trade Commission (FTC), the US competition watchdog, said it may force Facebook to divest assets, including Instagram and WhatsApp.³

However, Cordwell is sceptical this will happen. “It’s quite hard to argue Facebook has a monopoly. The FTC is trying to do it by defining the market in quite narrow terms but whether that can legally be argued I think is a real sticking point,” he says.

A taxing problem

Competition authorities are not the only ones turning up the heat on Big Tech; tax authorities are, too. For years, US tech giants have paid little tax, despite eye-watering market valuations and growth rates. This partially reflects the kind of creative tax practices employed by virtually all multinational companies.

On 5 June, G7 finance ministers struck a landmark agreement to impose a 15 per cent minimum corporate tax rate in an effort to limit tax avoidance by multinationals. But it is unclear whether the deal will significantly dent Big Tech’s profitability.

A malign influence

Some companies are facing calls for greater regulatory oversight for another reason: mounting concern over the malign influence of the internet in general, and social media in particular.

As Cordwell argues, while there may be complacency among some investors, it would be wrong to take recent share-price gains to mean the market is entirely unconcerned about the threat of regulatory intervention.

Three points to remember

• Big tech companies have been accused of becoming too powerful and behaving in an anti-competitive way, crushing would-be competitors and suppliers alike.
• However, the businesses are so complex it could be difficult to draw up new rules that would stand the test of time. There is also a lack of agreement by the EU and US on how to challenge Big Tech.
• Since few people dispute the need for at least some level of competition in healthy economies, the days of Big Tech getting an easy ride look to be over. But just how far their influence can be reined in remains to be seen.