By Paula Plechschmidt
It seems that one of the few winners of corona virus has been big tech. On the day that it was announced that US economic growth had collapsed by a never before seen 32.9%, Amazon reported a quarterly profit of $5.2bn, 40% higher than during this quarter last year. Facebook’s revenue rose 10% in the second quarter and Apple become worth $2 trillion, making it the most valuable company in the world.
However, this astonishing growth has a drawback. With their global influence being undeniable, especially during a pandemic which has made their services indispensable, both end users and governmental agencies have become more vocal about the dangers of these behemoth companies. This poses the question, is big tech really too big?
Different parties are all able to identify significant problems with the impressive growth of the likes of Apple, Facebook and their peers. These include crowding out competition, questionable use of data, and destroying the “real-world” industry in due to the incredible shift to online functions.
The most significant challenge to these companies has been an antitrust hearing, in which Big Tech’s leaders, Bezos (Amazon), Zuckerberg (Facebook), Cook (Apple), Pichai (Google), faced members of the US congress on the basis that they had been able to tilt the digital playing field in their favor due to the sheer power they have over their sector.
In Amazon’s case Bezos shockingly demonstrated that he was unaware of how exactly seller data is being used within his company.
“Let me ask you, Mr. Bezos, does Amazon ever access and use seller data when making business decisions?” Jayapal asked.
Bezos highlighted the company’s policy banning the practice, but said, “I can’t guarantee you that that policy has never been violated.” He continued, “We continue to look into that very carefully. I’m not yet satisfied that we’ve gotten to the bottom of it, and we’re going to keep looking at it. It’s not as easy to do as you would think because some of the sources in the article are anonymous.”
Furthermore, documentation outlined that Amazon executives managed to acquire Diapers.com by cutting prices on diapers on Amazon, eventually allowing them to buy the company for a fraction of its original value. This gives an indication of the power these kinds of companies have over their competitors and how simple it is for them to wipe out anyone they deem as an obstacle to their success.
This action is reminiscent of Facebook’s acquisition of Instagram, which was also analysed by congress. The accusation that Facebook buys out anyone they see as competition is corroborated by the following email that was unearthed during the trail.
Many believe that this type of hostile action can lead to more significant problems in innovation, causing development to become stagnant. On the other hand, it also has to be considered that by doing so, companies like Facebook are gathering technology’s greatest talents in one place and are thereby potentially actually increasing the efficiency of innovation by allowing these people to work together. By doing this they have been able to bypass this danger so far. In fact, instead of causing technological development to become stagnant due to a lack of competition, they have simply taken the competition and brought them together in an environment where, although it is to the benefit of Facebook, they are ultimately able to create far more value for the end user than they would have been able to on their own. For instance, Apple and Google were able to react extremely quickly to the coronavirus pandemic and develop a privacy-retaining contact tracing feature. The speed at which this was achieved emphasises the sheer technological knowledge these companies possess and demonstrates how their size and incredible resources are able to respond innovatively to new problems at a pace like no other.
These are only a few examples of how these tech companies use their scale to create an advantage for themselves. Google has come under fire for its dominance in web search, and that the search engine often prioritizes Google-owned products in favor of small businesses. Amazon is seen as a destroyer of the “real-world” industry, and Apple is currently in conflict with Fortnite, which is aiming to fight the 30% App Store tax, arguing that Apple has too much power over other firms and individual users. All of these activities border on anti-competitive behavior, clearly harming other businesses that want to succeed in technology.
Not only the US has problems with Big Tech. The EU commission wants to be able to force companies like these to break up or to sell European operations if the market dominance is deemed to threaten the interests of the customers. Thierry Breton, the European Commissioner for Internal Market has said “There is a feeling from end users of these platforms that they are too big too care”. The forthcoming EU Digital Services Act aims to set new rules to regulate these companies. Taxation in Europe is another contentious point. As the headquarters of these tech giants are in the US where they already pay very low taxes, they do not have to pay significant taxes in European countries, although the businesses they eliminate due to anti-competitive behaviour do.
Another issue many people see with companies of this scale is the incredible amount of data they have on their users. Many customers are unhappy about the fact that companies like Google are using their information for profit purposes and are afraid that it can be used in a maleficent way. However, this is not the main issue as the data usage is under such intense scrutiny and regulation that it would be near to impossible for Google to use any data in a harmful manner. The true danger lies in the mere existence of the data. If it would get accessed by people that would use it for purposes such as surveillance, control or blackmail, it would pose a massive threat. This blame cannot however be placed directly on the companies that facilitate the production of data; instead data protection is something that needs to be worked on both company and national levels.
While all of these issues are inherently caused by the size of these companies, one also has to consider that perhaps only due to their size are they able to create the amount of value they do for their customers. This phenomenon is called the network effect, which is often seen as one of the main drivers of technology’s growth. Essentially, this means that the product the company produces becomes more valuable as the number of users increase. This is clear in all of the big tech companies. The more users Amazon has, the cheaper it can make its products due to reduced underlying costs, and the more people will flock to it. The more people use Facebook, the more useful it becomes to customers etc.
Even in light of the issues outlined above, one cannot understate the extent that Big Tech has positively influenced customers lives. Most importantly, it is impossible for this value to be produced solely by the service the company offers. In fact, the majority of the value stems from the size of the company and the numbers of people that use it. So, by saying that big tech companies need to be reined in, one is not only combatting the issues that the size is causing but is also taking away the largest driving factor of their success. Especially in the context of the pandemic, it becomes clear that Big Tech’s success was vital to retain a certain level of normality in consumers lives and that it would be largely detrimental to many consumers if the success would be cut down.
The question is where the balance should lie. The conclusion that can be drawn is that there is nothing inherently wrong about the size of these tech giants. While it gives them a lot of power over the everyday lives of their customers, the size of the company is also what makes it so useful to these consumers. Therefore, instead of focusing on breaking apart these companies, regulatory steps must be taken from the government’s end, addressing the unfortunate byproducts of their size such as anti-competitive behaviour. Additionally, the companies themselves have to find a way to rebrand themselves, moving away from the power hungry image that causes people to focus on their drawbacks, rather than the value they are able to provide.
The views expressed in this article are the author’s own and may not reflect the opinions of The St Andrews Economist.