Yours virtually, Washington: Big Tech attends Congressional antitrust hearing
Wednesday 26th August 2020
Apple made history on the 19th of August when its 2020 stock rally pushed its market capitalisation to over $2 trillion, the first time any American company has surpassed that level. The new milestone makes Apple the most valuable publicly traded company on Earth.
Apple is not the only company doing well in 2020. Amazon has also enjoyed sharp rises in its share price, soaring at 70% above its stock market lows earlier this year. Microsoft’s fourth quarter earnings reports showed its revenue grew 13% despite the economic fallout resulting from the COVID-19 outbreak. Similar tales hold true for other US tech companies who have enjoyed similar levels of share value and market capitalisation increases, whilst other companies suffer severely from the ongoing global recession.
The Big 5 - Facebook, Amazon, Apple, Microsoft and Alphabet, Google’s parent company - and their success this year in comparison to most companies worldwide is in part the result of what many consider a perfect storm. Due to the Coronavirus outbreak - hundreds of millions, if not billions, of people have been required to put on hold ordinary aspects of their daily lives, staying indoors as much as possible in order to curb the spread of the virus.
With hundreds of millions needing to digitalise their lives - the services that tech companies provide have very quickly become necessities. Zoom calls have become formalities, owning a mobile device with access to the internet a prerequisite, and cloud services - whether for sending and receiving emails, documents or videos - have become no-brainers. For most people in developed nations, not being connected or involved in the digital world in some form is practically impossible. Tech companies have benefited from the need globally to digitalise, and tech ‘disruptors’ are now becoming mainstream.
This is no different for the Big 5. Those 5 companies now make up 20% of the S&P 500 by value and are collectively worth around $4.9 trillion. This is to the delight of shareholders and investors looking for resilient companies in the face of the novel and unprecedented. For US government officials- particularly Democrats, not so much. Many view the success and growth of the Big 5 as them having far too much power and influence over the lives of millions.
Amazon founder and CEO Jeff Bezos was grilled on his company’s strategy when it bought the famed diaper company, Diapers.com. Amazon acquired Diapers.com’s parent company, Quidsi in 2010 but ceased operations of the company in 2017 due to it failing to attain profitability. Prior to its acquisition of Quidsi, Amazon identified Diapers.com as a potential competitor when it was trying to enter the online diaper business. Democratic Congresswoman Mary G. Scanlon questioned Bezos on why Amazon engaged in what was potentially predatory pricing, cutting its own price for diapers to eliminate competition and subsequently raising the price of diapers once the company felt it had attained a strong position in the diapers market.
Apple’s Tim Cook was questioned on the company’s seemingly anti-competitive practices regarding the way it deals with developers on its App Store. Cook was queried by Democratic Representative Joe Neguse on why Apple’s App Store guidelines - which had a rule against “copycat apps”, banning them because it felt it was unfair to fellow developers for anyone to replicate other developers’ apps and profit off of them - contrasted and even contradicted in principle with the company’s developer agreement, which legally protects Apple if it ends up creating a similar product to that of a developer using its App Store.
Despite there being a few questions dwelling on the ethics or morality of some of Big Tech’s practices - Alphabet’s partnership with Chinese clients or Facebook’s issues with misinformation or social media’s conservative bias - lawmakers did raise important points that provide insight as to their future attitudes towards some of the biggest companies on earth by market capitalisation.
For example, Amazon’s domination of the e-commerce sector was one of genuine concern. It accounted for around 30% of total e-commerce in the UK and the figure is above 50% in the US. This gives the company immense power; the sizeable market share enables it to create barriers of entry for competitors and engage in anticompetitive practices toward smaller players in the e-commerce sector. However, Jeff Bezos and Amazon have repeatedly argued that they do not engage in anti-competitive behaviour and genuinely provide a platform for small scale sellers to find customers and grow their own sales. With COVID-19 keeping millions in their homes, Amazon is undoubtedly one of 2020’s biggest winners - and their stock price reflects that.
The same tale holds true for social media giant Facebook. Representative Jerrold Nadler interrogated Facebook founder and CEO Mark Zuckerberg on the series of events leading up to Facebook’s $1 billion purchase of Instagram in 2012. Nadler argued that Facebook viewed Instagram as a threat that would lure viewers away from Facebook. “Rather than compete with it, Facebook bought it,” Nadler said, claiming that the 2012 sale was a clear example of the type of acquisitions that US antitrust laws were designed to prevent.
If anything is to be garnered from July 29th’s Congressional hearings, it is that the tide has turned in the US, and it’s been a long time coming. Gone are the days where the world of tech was the Wild West and companies were left pretty much to their own devices. Tech companies have become increasingly under scrutiny by regulators in the West, and this tension between the two sides has created an area for confrontation. In July, Facebook sued EU regulators on making “irrelevant” demands on Facebook in their antitrust probe that, if Facebook complied, would have resulted in the company having to turn over information on employees’ medical information and finances.
But regulators have their minds set. Big Tech is too big. Comparisons have been made between the tech behemoths and the late 19th century US industrial conglomerates such as John D. Rockefeller’s Standard Oil or Andrew Carnegie’s Carnegie Steel Company. Presumably, Big Tech’s immediate future will be determined by whether Democrats manage to win Congress this November or if Republicans will keep hold to their majority. One thing’s for sure, the antitrust battles have only just begun.
