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Will Apple, Google, Facebook, and Amazon Be Forever Dominant?
President Donald Trump, Satya Nadella of Microsoft, and Jeff Bezos of Amazon.
I’m skeptical that Washington will break up Big Tech like it did Standard Oil or AT&T. Likewise, New York Times tech columnist Farhad Manjoo also doubts such action is on the near horizon, or really governmental action of any kind. One difference is that Manjoo — who refers to Amazon, Apple, Facebook, Google, and Microsoft as the “Frightful Five” — seems far closer than I am to being convinced strong action is necessary. From his lede: “The tech giants are too big. They’re getting bigger. We can stop them. But in all likelihood, we won’t.”
Like I said, I’m not there yet. But one thing that could nudge me a bit closer is the certainty that the megaplatforms were dampening US innovation. And that’s just the argument being made, anecdotally at least, by Erin Griffith in Wired.
And, in its own backyard, many in Silicon Valley believe Facebook’s aggressive competitive strategy is stifling innovation. Since 2012, Facebook has repeatedly copied or acquired social-media apps that gain traction. There’s the Instagram deal, and more astonishingly, its $22 billion acquisition of WhatsApp. Facebook attempted to acquire Snap for $3 billion, was turned down, and made at least 10 attempts to copy its most distinctive features. Last week the company acquired tbh, an anonymous app for teens that has bubbled up in recent months. … Facebook isn’t the only Silicon Valley company that competes aggressively against upstarts. Amazon started a price war with Diapers.com, then bought the weakened rival. When Google Maps competitor Waze became popular, the company bought it. But the speed at which Facebook identifies its targets, the amount of money it is willing to pay, and the shamelessness of its copycat products goes beyond its peers.
Indeed, one point that Griffith makes that I also have is that today’s founders have learned the lessons of disruption. They’ve read Clayton Christensen and Andy Grove. They won’t be lulled into complacency. They won’t let some upstart startup steal their lunch, starting with the side order and eventually moving to the main entree. To that point, it’s worth reading the latest blog post by Andreessen Horowitz tech analyst Ben Evans. After documenting just how big Big Tech really is — even compared to dominant players of the past such as Wintel and IBM — Evans expresses his doubts about their forever dominance:
Published in Economics, TechnologyOn the other hand, both in tech and the broader economy, large, dominant companies don’t last. You lose the market or the market becomes irrelevant. Nokia had close to half of the mobile handset market a decade ago and lost it all; IBM still has the mainframe market but no-one cares. Few people can predict where the change will come from, but it does come. [Google, Apple, Facebook, Amazon] are very visibly conscious of that – Google experiments with everything, Apple is working on cars and mixed reality, and Facebook bought not just Instagram and WhatsApp but Oculus.
But then, Microsoft was working on smartphones and mobile devices 20 years ago, and now it’s killed Windows Mobile, acknowledged that the PC is going the way of the mainframe and, like IBM, has to make its way in a market shaped by other companies. There probably won’t be a technology that has 10x greater scale than smartphones, as mobile was 10x bigger than PCs and PCs were bigger than mainframes, simply because 5bn people will have smartphones and that’s all the (adult) people. There will be something, though, and though ’something will change, but we don’t know what’ is an unfalsifiable point, so is ‘nothing will change’, and I know which side of that argument I find more likely.
I remember in the 90’s when the big question was, “Do we dare allow (I like that the government was talking “Allow”) Wal-Mart to keep growing and take over all retail in the country. today, the question is ‘do we allow Amazon to do so?’.
in both cases, you have to remember that the larger an umbrella company becomes, the more small companies it can (or must) bring under its shelter. I remember being a small, specialty company in the 90’s (I made handcrafted soap before everyone and their sister-in-law did) and the best opportunity at the trade show was when the wal-Mart buyer came by. now, it’s Amazon. the good news is, Amazon doesn’t have to buy my stuff, I can simply list it via Amazon and still make my cottage business work based on whether it is any good.
Perhaps my answer simply boils down too: do we have any belief that the market can sort out the good from the bad or not?
This is a huge question and I’m anxious to hear folks here who have inside knowledge of the sector, the technology and also know that the government/sector giants will become the ultimate threat should the government try to micro manage these under the illusion they can be effectively regulated by a bunch of high tech bureaucrats.
My main concern is how the sheer dominance of Facebook and Google affects the dissemination of information. Given that both corporations are heavily involved in blocking content from conservatives while promoting content from leftists, their dominance can alter the way a culture thinks and acts. In fact, is already doing so.
I’m pretty libertarian as regards private enterprise, but it’s to the point where these platforms are practically public utilities. (They’re not. But . . . they are certainly on that level.)
Nor do I want a government-controlled Facebook- or Google-equivalent. Because I know what, for example, another Obama-like administration would do with it.
Dietzgen once made the world’s best slide rules. Fuji spent an enormous amount of money trying for a toehold against Kodak’s dominant position in the market for photographic film. William Rodger’s 1970 book Think: A Biography Of The Watsons And IBM ended with words to the effect that there was little for Big Blue to do now but settle in to the role of world domination.
Things change.
Macy and Chase are Nantucket whale oil family names. Extreme wealth doesn’t die easily.
Egypt was extremely wealthy for thousands of years after its power evaporated.
No company is ever anything forever.
And every job I ever had was created by someone who was wealthy. I don’t fear the wealthy, I fear those who despise them because they are wealthy.
One would think that the terms “AOL” and “MySpace” would be enough to quell most fears of tech companies establishing permanent hegemony.
The tech industry does seem to differ from many other industries in that it appears to naturally fall into serial monopolies – i.e., any given niche is organically dominated by one company, until either that company is replaced by a new one (e.g. MySpace>Facebook), or the niche disappears (e.g. AOL). It is a little strange to bounce from one monopoly to the next, but consumers don’t seem to have suffered too greatly for it.
I have this push/pull in me, too. I don’t want government controlling Facebook, et al, but I also worry about the way information is disseminated. I don’t have any solutions though, so I’m stuck.
This is a good point, but I didn’t see these controlling information to the degree that these other companies do now.
That is an excellent observation with all its implications and a good reminder.
This is the point.
They’re only too big when the consumer is harmed in some way. I’m not sure about anyone else, but being able to order something from Amazon and have it magically appear on my doorstep, sometimes the next day, is amazing.
I’m not sure where choice has been reduced significantly because of Amazon. Substitute goods are legion so the things you can’t get in one place you can get in another.
Facebook is a social media platform. It can be argued that it serves no public need whatsoever. That it is an information dissemination platform (largely designed for social “stuff”), but can be used for political information, is just a function of ubiquity. I really dislike the idea of trying to break something up because people choose to consume information from one big platform that carries a multitude of opinions.
The gov’t didn’t break up the older media conglomerates whose communication and information streams were paper, TV, or radio – although they regulate them. I prefer the markets regulate the businesses, rather than aging idiots who’ve been in the same jobs for 40+ years, and have aides do all their work for them, and have their haircuts on their balding pates be paid for by people who work for a living.
True, but I don’t think the information collection has much to do with the fact that Facebook or Google are near-monopolies. I think the data collection is simply the nature of the beast of modern digital interaction, and AOL or MySpace would be practicing it just as aggressively if they were still around today.
Data collection will always be attractive because there’s such a good business case for it: having more data on your customers allows you to better target advertisements, services, etc., to them, which can be easily monetized. And most people naturally value their personal data less than their money, so they will be happy to trade their data for free services (which is essentially the Facebook and Google business model).
The question then becomes: who would we trust more with our data – a small number of huge companies, or a larger number of smaller companies? Both have their pluses and their minuses, and I don’t see an obvious advantage of either.
The economies of scale have to be grasped and dealt with. For digital electronic economy the economies of scale are infinite which means the the supply curve does not slope up and there is no supply and demand clearing markets the way our econ 101 draws graphs. So monopoly and abuse of monopoly are inherent in the business. However we will turn dominate companies into permanent monopolies if we try to regulate them because that’s just what always happens. The regulators are captured. So far the sector is so free of regulation and so dynamic they don’t need regulatory protection. If we want to bring some restraint and make entry and competition easy we may have to create a legal structure, a sort of Glass Steagall act for the sector, but we must avoid trying to create a overarching regulatory framework like we have with the financial sector. That sector now runs the economy because of the regulatory framework they designed for themselves.
I have the same concern regarding anti-competitive practices, but we must distinguish between being highly effective in competition (e.g., low but profitable prices as a result of economies of scale) from being anti-competitive (e.g., predatory pricing.) Breaking up large companies is neither necessary nor sufficient to prevent anti-competitive practices. Amazon’s outsized market cap allowed them to stifle competition from upstarts long before they were a globally significant company in terms of market share.
The relatively low barriers to entry in many of these technology areas are the best argument against breaking up the tech giants. But their acquisition strategies are cause for concern. If they can simply buy out any company that emerges as a competitive threat there can’t be a competitive market in their industry. So that begs the question whether or not this behavior can be managed without breaking them up or regulating them as monopolies. There are two obvious reasons these companies acquire smaller start-ups – to acquire technology that makes their product better, or to eliminate a competitive threat. Of course, those reasons need not be mutually exclusive. If it’s legislatively possible to distinguish the former from the latter with a reasonable degree of accuracy, then we can solve the problem for US markets in general, and we need not address these companies specifically. This is a fairly tall order, but I think it’s worth a shot.
Copycat products are no reason to worry about these companies specifically. Nobody talks about breaking up the car companies when they use patented technology without a license. We expect the patent holders to seek remedy in the courts. Might there be a better way? Possibly, but it’s not a problem unique to these particular companies.
I’m not in the field, but nonetheless I don’t think this is correct.
The economies of scale for the physical resources may indeed be practically infinite. But scaling up many of the actual services being offered can run up against some real hurdles.
Take the Facebook News Feed, which attempts to automatically connect people with the news which most interests them, and which has come under quite a bit of fire recently. Back when Facebook had “only” a few million users and news was obtained from a few thousand sources, it wasn’t so difficult to match user with appropriate content. Now that there are nearly a billion users and several hundred thousand sources of news (including many intentionally fake news sources), running this service in a way that users find beneficial is proving to be very difficult.
And I’m admittedly on very thin ice here, but I was under the impression that the complexity (and thus manpower needed) of code increases greater than linearly as it grows in length, due to the non-linear growth in complexity. But somebody more knowledgeable should chime in on that one.
I see your point about the supply curve, but don’t see how this naturally results in monopolies. I haven’t studied it, but intuition suggest the supply curve should be basically the same shape for all companies in these markets, which would allow for competition. What am I missing?
The original comment confuses two related but distinct issues: economies of scale, which relate to cost, and the supply curve, which relates to price. I agree with your assessment that the cost curve is likely rightward increasing, however, the price curve is likely a different shape as network effects and such allow for additional and increasing revenue streams.
I share your concerns Drew, bot those who call for the break-up or regulation of these companies for this reason are essentially proposing that government regulate these companies because we don’t like their products. That may be a reason to regulate the products, as we do with so many products, but it’s not a reason for government meddle with the companies.
I think everyone is looking at this the wrong way. The acquisition strategy presents opportunities. Start a competitor and get rich. Until there are so many competitors trying to do the same thing that the acquiring everyone get uneconomical. In the meantime, you see mare and more innovation.
I am quite happy never having joined Facebook, and rarely using Amazon. I hear so many horror stories of Facebook scams via Kim Komando that I resolve never to have any connections with them. If I can do it, you can, too. I no longer use Google for search either, but that has less to do with their “monopoly” status than their liberalism and support of Lib hate groups.
I see your point, but I don’t think it’s inconsistent with mine. If these large companies make acquisitions to improve their products I’m all for it. As you suggest, it fosters innovation. However, in some cases the acquired company’s technologies or market innovations never show up in the large company’s products. Large companies seem to make acquisitions just to make competitors go away so they don’t grow into a threat. While this may have economic value from a simple transactional perspective, it’s anti-competitive and we’ve a well established history of regulating anti-competitive business practices. Many argue that regulators are overzealous, but very few argue that there’s no place for it. If the difficulty of reliably distinguishing proper acquisitions from anti-competitive ones can be worked out, I’m not opposed to regulating such acquisitions as I think it will benefit the market overall.
Regarding cost curves. My first post was asking people who know the sector to address the issue because I don’t. While soft ware can be very expensive and getting rolling is both costly and risky, once successfully launched the marginal cost of acquiring one more user is zero. Content as well, a movie, music, sports game, is expensive to produce but one more user, viewer, listener costs nothing. These costs explain the value of a super sports hero or a musician who reaches fad status. This means the supply curve slopes downward. However, marginal costs increase if competition is such that firms must constantly innovate and improve and cant sit on market share and have to fight bureaucratic bloat. Never-the-less if they can arrange for regulation so that entry becomes difficult they can relax, go back to zero marginal costs and hence destroy any competitor who has to spread the same capital costs over a much smaller number of users. This is why we almost lost the semiconductor business to the Japanese and got it back only by muscling them. Now, consider the other side of these gargantuan places. Walmart or Amazon enjoy monopsony power, that is, unlike normal sized buyers, they can significantly affect the costs of their inputs. Combine zero marginal costs on the production side and ever growing bargaining power on the input side and we have a challenge to make competitive entry always a threat to their market power. Easy entry and innovation is vital. Government regulation makes entry more difficult and frequently retards innovation. The question then is, given the technology, how do we create a legal framework that assures easy entry and is the technology and its evolution such that we don’t have to worry in spite of falling marginal costs?
Both of my older daughters consider Facebook to be something for “old people” (although I know many people their age who use it). That attitude is why the near monopoly that FB currently has on social media won’t last forever. Unless it can somehow find a way to stay relevant and appeal to generation after generation, it will eventually fade away. Apple is strong now, but hardly a monopoly. There’s plenty of competition in the smartphone market. Amazon and Google are different stories. They’re both diversifying quickly and have dominant market positions where it’s hard to compete. So far it doesn’t seem to be hurting the consumer, but time will tell.
When I moved to Paris, we telexed or mailed or expressed packaged to the states when we had large documents. Response time was slow except Telex which was limited in length. Sometimes we called, but calls were expensive. Then we got a fax machine. We would use rudimentary word processors, create a document, and then scan and send detailed documents in seconds. It was a miracle. Then, voicemail on toll free lines arrived. Got a long message and the overseas office is closed, leave a voicemail. Then pagers, to speed things up. Then email. 15 years. Paper, voice, paper, digital, voice, digital. Telex, PTT, Xerox and Wang and Toshiba and IBM PC’s and telecom. Winners, loser, disrupters, and disrupted.
Cost down, service and quality up. On call, 24/7. Never a dull moment.
A friend of mine calls these the FANG stocks. :)
N?
I do not use many social media platforms (just Facebook in private mode to track the grandkid’s doings). While disturbed at the censorship controversies that swirl around Big Social Media, otherwise they do not intrude on me too much (yet).
But wow, I was impressed when, after adding a spare part for a home carpet cleaner to my wishlist on Amazon without buying, I soon had an advertisement for a new carpet cleaner, same brandname, show up on my Kindle.
Amazon is a champion of cross-selling.
Oops. I had the companies slightly off. :)
Netflix. :) And it’s not Apple–it’s Amazon. :)
Facebook, Amazon, Netflix, and Google.
I am sure there a lot of people who prefer Apple to Amazon, based you know, on profits.
You know these companies all have a shelf life, that once they become the primary internet service (in what ever segment) they have a countdown clock running for when they start losing users. At one time, Iam sure the A in FANG was AOL.
I think this is whats driving Google and Facebook’s investment strategy of buying odd tech companies. They’re looking to diversify their service portfolio so that if someday Google is no longer a verb, they have some residual value in mobile phones or home automation or whatever.
And I’ll abet the N was originally Netscape.
Let’s hope our economy remains as dynamic over the next 60 years as it has over the last 60 years. How many of these companies do you recognize? How many are major forces in today’s economy?
Dow Jones Average Companies, July 3, 1956
Allied Chemical and Dye Corporation
General Electric Company
The Procter & Gamble Company
American Can Company
General Foods Corporation
Sears Roebuck & Company
American Smelting & Refining Company
General Motors Corporation
Standard Oil Co. of California
American Telephone and Telegraph Company
Goodyear Tire and Rubber Company
Standard Oil Co. of New Jersey
American Tobacco Company (B shares)
International Harvester Company The Texas Company
Bethlehem Steel Corporation
International Nickel Company, Ltd.
Union Carbide Corporation
Chrysler Corporation
International Paper Company
United Aircraft Corporation
Corn Products Refining Company
Johns-Manville Corporation
United States Steel Corporation
E.I. du Pont de Nemours & Company
National Distillers Products Corporation
Westinghouse Electric Corporation
Eastman Kodak Company
National Steel Corporation
F. W. Woolworth Company