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On Big Tech, Competition, and Startups
Just how alarming is this Wall Street Journal story, “The New Copycats: How Facebook Squashes Competition From Startups”? I think I am supposed to be pretty alarmed. It tells the story of “hot video app” Houseparty and its emerging battle with Bonfire, a planned live group-chat app from Facebook. And as they say, Houseparty is not alone:
The deep pockets of giants such as Facebook, Alphabet’s Google, Apple, and Amazon.com Inc. make it increasingly difficult for startups to compete and stay independent. The four firms have a combined market capitalization of almost $2.5 trillion, a rough equivalent to the annual gross domestic product of France. Facebook acquired photo-sharing app Instagram in 2012 for $1 billion and messaging service WhatsApp in 2014 for $22 billion. Google in 2013 bought Waze, a rival to Google Maps. Amazon in 2010 bought Quidsi, the online retailing company behind diapers.com and other sites, after trying to copy it. Lately, the titans also appear to be imitating smaller rivals more aggressively. In July, a week after the initial public offering of Blue Apron Holdings Inc., an Amazon subsidiary filed to trademark a meal-delivery kit with a tagline that echoed Blue Apron’s offering. Both Google and Facebook have taken aim at features on Snap. Inc.’s Snapchat platform.
So what is the public policy issue here, exactly? The piece quotes MIT’s Scott Stern noting that acquisition can be a “very good win” for the startups’ founders and investors. Certainly the startup sector looks pretty vibrant. At last check, there are 100 American unicorns, companies valued at $1 billion or more by venture-capital firms. And check out the Bloomberg startups barometer:
So the actual issue then, as Stern adds, is the “competitive landscape” of US industry. Which gets us back to whether the market dominance of the tech giants is currently a bad thing. I think it’s hard to make that case regarding negative impact on consumer welfare, at least for now. In addition, these companies are certainly acting as if their dominance is tenuous given how close they track potential competitors. From the piece: “Facebook is being aided by an internal ‘early bird’ warning system that identifies potential threats, according to people familiar with the technology.” Longer-term, Big Tech control of Big Data is likely to be where the antitrust regulatory battle rages.
Published in Economics, Technology
The chart measures the net money flow to Venture Capital backed startups. What it shows is that it takes big money to battle the entrenched established firms. Apparently the barriers to entry are pretty high. Nobody is starting up a competitor to Facebook or Google in their garage.
I’d be more interested in the raw numbers of startups. Is this VC money being spread around or getting concentrated in a limited number of firms?
It’s quite natural for the incumbents to employ their massive war chests (too much?) to snatch up potential competitors and/or create moats. (thanks Warren)
Regardless, perspective is important.
GE is the only company from the original Dow 30 that remains in existence in its original form.
Another anti-competitive tool that they use, far more effectively than finances, is the software patent and flimsy intellectual property claims. Now, companies that spend huge dollars researching a new product do need some protection from coping – but not to the degree that exists now.
Software should not be patent-able, its an artistic endeavor like writing a book – there should be copyrights, and industrial design protections. There are no patents on books, Agatha Christie didnt patent “the red herring plot device” (A plot device in a mystery novel that misdirects the reader to believe another character is guilty.)
I think this is a huge stumbling block to prevent new competitive participants in a market.
Did you know that James Watt (or an engineer working for him) invented the sun & planet gearing system, because someone else had already patented the crank?
Could you imagine the chaos that ensue if auto companies had look-feel and operational patents on their cars? So that the controls of a Ford, GM or Honda all had to be different?
There could not be a car rental business. Customers would be locked into 1 car brand, as they would be uncomfortable/unfamiliar with the controls of the other – like an apple user confronted with a Linux Command or Bash prompt. For example:
If Microsoft Made Cars
At a recent computer expo, Bill Gates reportedly compared the computer industry with the auto industry and stated: “If GM had kept up with technology like the computer industry has, we would all be driving twenty-five dollar cars that got 1000 miles to the gallon.” In response to Bill’s comments General Motors issued a press release stating the following: “If GM had developed technology like Microsoft, we would be driving cars with the following characteristics:
1. The radio would be computerized, but you’d need to install 64 Meg of RAM, a new sound card, a game card, a new video driver, a CD drive, and type C:\radio\talk\rush*.* to get it to play.
2. The entire engine wouldn’t be in the bay at once, and the car would have to keep stopping and starting to load in the relevant parts.
3. The speedometer would read 70 even though you are only doing 50.
4. You would have to have a full service every 500 miles.
5. Your car would refuse to start with a message “Abort, Retry, Fail?”
6. For some reason the engine controller would need a 1G hard disc and would take 5 minutes to boot up.
7. The steering wheel would be replaced with a mouse and you’d need to memorize the keyboard short-cut for “Brake”.
8. A particular model year of car wouldn’t be available until after that year- instead of before it.
9. They wouldn’t build their own engines but form a cartel with their engine supplier. The latest engine would have 16 cylinders, multi-point fuel injection and 4 turbos, but it would be a side-valve design so you could use Model-T Ford parts on it. There would be an “Engium Pro” with bigger turbos, but it would be slower on most existing roads.
10. The air bag system would say “Are you sure?” before going off.
11. New seats would require everyone to have the same butt size.
12. We would all have to switch to Microsoft Gas.
13. The U.S. government would be forced to rebuild all of the roads for Microsoft cars; they will drive on the old roads, but they run very slowly.
14. The oil, alternator, gas and engine warning lights would be replaced by a single ‘General Car Fault’ warning light.
15. Sun MotorSystems would make a car that was solar-powered, twice as reliable and five times as fast, but would run on only 5% of the roads.
16. You would be constantly pressured to upgrade your car.
17. You could have only one person in the car at a time, unless you bought a Car95 or CarNT — but then you would have to buy ten more seats and a new engine.
18. Occasionally, your car would die for NO apparent reason and you would have to restart it. Strangely, you would just accept this as normal.