Much has been written about whether Big Tech has peaked. Meta recently announced its first ever sales decline, amid a slump in online advertising. Amazon, Netflix and others have cut back on hiring. Many platforms have seen their share prices crushed this year, typical as rates rise, and their growth is slow.
But these are short-term trends that depend on the global economic cycle. The biggest change is that real cracks are starting to appear in Big Tech’s core business model, which relies on globalization and the network effect to create scale. Three key policy and regulatory changes are challenging the ability of platforms to cross borders and lock down market share. And they’re doing it in ways that will be more lasting and impactful than the ups and downs of stock prices in a global recession.
First, consider the EU rules, passed in July, that will bind the world’s biggest instant messaging services, including Apple’s iMessage, Meta’s WhatsApp and Facebook Messenger, and most likely Google Chat and Microsoft Teams, to communicate with each other. This kind of “interoperability” will make it harder for these companies to secure market share through Big Tech’s usual land hoarding, which involves luring users to a particular service and then locking them out by making it difficult to transfer their data and information to rivals. .
When contact lists and other data are carried over instantly, it’s easy to switch from one service to another. This may create a more competitive technology landscape over time, although privacy advocates worry that it will also create more potential for data abuse, as it will require a more open software paradigm that some believe could undermine security ).
In the political arena, the opposite is happening: it is increasingly difficult for many technology companies to cross borders. Two weeks ago, Alibaba, the Chinese technology platform giant, filed for an initial public offering on the Hong Kong stock exchange, in anticipation of new U.S. financial rules that require more audits of sensitive data than Beijing is willing to do. to allow About 200 Chinese companies may end up delisting in the US because of the regulation. This underlines the bipolar or even tripolar world that is developing in technology, with the US, Europe and China diverging.
While there is talk of the Biden administration lifting tariffs on China, America’s economic and political elite have little expectation that we will once again have a single, unified web for the entire world. The Council on Foreign Relations recently released a task force report titled “Confronting Reality in Cyberspace: Foreign Policy for a Fragmented Internet.” This declared that “the era of the global Internet is over” and “Washington will be unable to stop or reverse the trend toward fragmentation.”
There is a lot of work to be done on this front: the US can’t even get a federal privacy law passed. That’s partly due to fears on the political left that the tech industry has succeeded in watering down the proposed national legislation so much as to actually undermine the tough rules already in place in states like California. There is also concern that a federal law would place an excessive enforcement burden on one agency, the Federal Trade Commission.
But the FTC, under its pioneering antitrust chair Lina Khan, is already pursuing a potentially game-changing case in another area. In late July, he challenged Meta’s bid for virtual reality company Within, arguing that the company was already a key player in VR and was trying to “buy its way to the top” rather than compete for its own merits
The case, which is highly unusual in that it’s a small start-up acquisition rather than a merger between two giants, is at the core of Big Tech’s model of snapping up potential competitors in their infancy. For example, Facebook’s pre-Meta 2014 acquisition of Occulus, a virtual reality start-up, ensured that the up-and-coming OS didn’t compete with its own. Its acquisitions of Instagram and WhatsApp also prevented those companies from becoming social media competitors.
Meta is hardly alone here. Numerous start-ups have accused Amazon of acquiring its technology to launch competing products. And Google has gotten hundreds of competitors. But if the current case, which will play out over years, is successful, it would profoundly change Big Tech’s tactic of stifling young competitors.
All of this, in turn, would begin to undermine the network effect that has allowed larger companies to reach such size and concentration. It could even open the door to platform breakout. The process will take time to unfold and will do so in different ways depending on geography. But these challenges to the Big Tech business model are real. Investors should take note.