• Equities
  • Economic Research
  • Fixed Income

The taming of the few

Despite accusations Big Tech companies are too powerful, their stranglehold across sectors will be hard to loosen. However, while investors need to keep a watchful eye on developments, Big Tech’s stranglehold on numerous economic sectors will be hard to loosen.

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.

Authorities need to decide whether to use legislation to foster more competition or accept dominant online platforms

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.

It’s hard to argue Facebook has a monopoly. The FTC is trying to do it... but whether that can legally be argued is a real sticking point

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.

G7 finance ministers struck a landmark agreement to impose a 15 per cent minimum corporate tax rate

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.

Related views

Important information

THIS IS A MARKETING COMMUNICATION

Except where stated as otherwise, the source of all information is Aviva Investors Global Services Limited (AIGSL). Unless stated otherwise any views and opinions are those of Aviva Investors. They should not be viewed as indicating any guarantee of return from an investment managed by Aviva Investors nor as advice of any nature. Information contained herein has been obtained from sources believed to be reliable, but has not been independently verified by Aviva Investors and is not guaranteed to be accurate. Past performance is not a guide to the future. The value of an investment and any income from it may go down as well as up and the investor may not get back the original amount invested. Nothing in this material, including any references to specific securities, assets classes and financial markets is intended to or should be construed as advice or recommendations of any nature. Some data shown are hypothetical or projected and may not come to pass as stated due to changes in market conditions and are not guarantees of future outcomes. This material is not a recommendation to sell or purchase any investment.

The information contained herein is for general guidance only. It is the responsibility of any person or persons in possession of this information to inform themselves of, and to observe, all applicable laws and regulations of any relevant jurisdiction. The information contained herein does not constitute an offer or solicitation to any person in any jurisdiction in which such offer or solicitation is not authorised or to any person to whom it would be unlawful to make such offer or solicitation.

In Europe this document is issued by Aviva Investors Luxembourg S.A. Registered Office: 2 rue du Fort Bourbon, 1st Floor, 1249 Luxembourg. Supervised by Commission de Surveillance du Secteur Financier. An Aviva company. In the UK this document is by Aviva Investors Global Services Limited. Registered in England No. 1151805. Registered Office: St Helens, 1 Undershaft, London EC3P 3DQ. Authorised and regulated by the Financial Conduct Authority. Firm Reference No. 119178. In Switzerland, this document is issued by Aviva Investors Schweiz GmbH.

In Singapore, this material is being circulated by way of an arrangement with Aviva Investors Asia Pte. Limited (AIAPL). Please note that AIAPL does not provide any independent research or analysis in the substance or preparation of this material. Recipients of this material are to contact AIAPL in respect of any matters arising from, or in connection with, this material. AIAPL, a company incorporated under the laws of Singapore with registration number 200813519W, holds a valid Capital Markets Services Licence to carry out fund management activities issued under the Securities and Futures Act (Singapore Statute Cap. 289) and Asian Exempt Financial Adviser for the purposes of the Financial Advisers Act (Singapore Statute Cap.110). Registered Office: 1 Raffles Quay, #27-13 South Tower, Singapore 048583.