Economic “bigness” has gone too far. Economists and political commentators have frameworks to tackle it, but allowing tech giants to grow and absorb small competitors has squashed tech democracy.
Earlier this year, the tech world looked on as IBM acquired open-source software provider Red Hat in a whopping $34bn deal, going down in history as the largest software acquisition of all time. Although Red Hat had previously flirted with other buyers, no others could (or were willing to) outbid IBM.
The acquisition runs on a lexicon of equal partnership and innovation: both sides talk about “joining forces”. Hybrid cloud innovation will power forward as Red Hat becomes a “distinct unit” within IBM’s Hybrid Cloud team. Red Hat’s CEO Jim Whitehurst views the acquisition as an opportunity for his company to reach IBM’s wide consumer base. At a press conference, he expressed his expectation that the acquisition will have no impact on internal running of the organisation; instead it will “all the while [be] preserving our unique culture and unwavering commitment to open source innovation.”1
For Red Hat employees, nothing will change. The headquarters will remain in North Carolina and fairly autonomous: CEO Jim Whitehurst will continue to head up Red Hat ventures, although he now reports to IBM CEO Ginni Rometty. Crucially, the company remains committed to developing and nurturing its partnerships beyond IBM, notably with IBM competitors Microsoft and Amazon.
Red Hat is asserting its autonomy, and sending a message to IBM and the rest of the tech world: this acquisition is a move to aid innovation - not to squash competition in the cloud market. After investigating the deal, US regulatory authorities gave IBM the thumbs up to go ahead, with the EU antitrust enforcer not far behind. The commentary around the acquisition has seemed preoccupied with the need to avert acquisition suspicion - and both seem anxious to avoid being seen as powerplay within the market.
In a tech market dominated by a handful of powerful giants, acquisition suspicion has become a scourge - and rightly so. As a phenomenon, the tech-giant-buys-smaller-tech-vendor has spiked over the last decade, as a method to grow market share and to squash competition. 2019 has been a year of high-profile antitrust: Spotify sued Apple in Europe over its 30% tax on Spotify subscriptions, and both the US Federal Trade Commission (FTC) and the Department of Justice (DoJ) have launched multi-billion dollar antitrust investigations into big tech.
Following the 1950 Anti-Merger Act in America, both the FTC and DoJ have the power to block or undo mergers where the outcome was “substantially to lessen competition or to tend to create a monopoly”.2 Decades of evading and eroding this law has catalysed the current climate, and finally tech giants are under scrutiny for being too, well, giant and the marketplace ethics that come with such size. I was surprised to find out it hadn’t been repealed and still exists: the climate would suggest otherwise.
Antitrust anxiety is at new heights. This probably has much to do with Facebook’s behaviour in the tech arena. Its acquisition of messaging platform WhatsApp is by far the biggest acquisition during its reign of the social media world. Spending $20.5bn, Facebook bought 500 million new monthly average users, effectively paying $55 for each one.3 With WhatsApp successfully drafted into the Zucker-verse, joining fellow social media platform Instagram, the combined number of users of the three platforms exceed 2.6 billion – almost double the population of China.
In January this year, Facebook broke its promises of each platform’s autonomy with plans to knit together the infrastructure of WhatsApp, Instagram and Facebook Messenger. The result was internal turmoil: founders of both subjugated platforms left the companies and many more employees clashed with Zuckerberg over the plans.4
More recently I rolled my eyes at headlines heralding Facebook’s plan to rename Instagram and WhatsApp to “Instagram from Facebook” and “WhatsApp from Facebook”, just in case users of the Facebook Multi-Messenger Empire hadn’t got the memo. With all other founders having departed from the picture, and protesting employees weeding themselves from the company, Zuckerberg has emerged as the victor in corporate tyranny. It’s clear that democracy in the Facebook nation of 2.6 billion users is no more, and failed protest has become a characteristic of the empire.
IS THERE AN ANTITRUST ANTIDOTE?
We can see that competition with big tech is not just difficult. It’s like wading through neck-high custard in your pyjamas: exhausting, everyone’s telling you not to and you give up before reaching the other side anyway. Nilay Patel, Editor-in-Chief at The Verge, pointed out that, “we’ve had no new search engine since forever and no new social network since 2011”. Why? Because there’s no point: “you can’t beat them at their current size.”5
The argument to break up big tech has become a central part of the US political agenda with a huge backing from Democrats in the US, rallied by Sen. Elizabeth Warren and backed by Facebook co-founder Chris Hughes. The argument is sound and the framework seems obvious: if you own the platform, you can’t sell on the platform. She also calls for the reversal of big tech mergers that bypassed the 1950 legislation. It's a wonder it hasn't been pushed before - but then again, how can you fix something before you realise it is broken?
The Democrat call for Big Tech Breakup comes almost as disciplinary repercussions for ethical, economic and political misbehaviour throughout the years - and it has gained huge amounts of traction in the political arena.
However, economists have criticised Warren’s approach for being outdated and only addressing the problems of 10 years ago. Reversing mergers that are now entrenched will break apart a market and have a huge ripple effect on both employees and users. After all, Silicon Valley companies are so successful because they create great products that consumers love - collectively 8 billion consumers, to be exact. The answer here seems to be heavier regulatory frameworks and more government investigations: if someone thinks they’re being watched, they’re more likely to behave.
Stifled innovation and lack of consumer power have both been cited over and over again as the biggest problem in competing with big tech, but perhaps the real issue is far bigger, deeper and harder to conceptualise: a Western aversion to anything undemocratic. If we take this as the real issue we are tackling, the conversation - and the proposed framework - changes.
About a year ago, I came across a brilliant opinion piece in the New York Times that warned, “Be Afraid of Economic ‘Bigness’. Be Very Afraid.”6 Columbia antitrust law professor Dr Tim Wu details an alarming connection between “economic bigness” (a term coined by Supreme Court Justice Louis Brandeis) and fascism. Thinking back to the 1930s, there were real concerns around big corporations having a powerful ability to disregard the law and thus undermine democracy. He argues that in today’s monopolised economies, fewer participating members make cooperation to achieve political goals easy and painless.
As populism sweeps across Europe and the US, anxiety around power distribution is rife and has tainted the conversation around big tech. Why should one man have 70% of the voting rights at Facebook? Why is Tesla directing the conversation on brain-machine interface rather than the government? And more pertinently, shouldn’t we hold economic giants back from absorbing the very competitors that keep the power in balance?
The real issue at hand is that innovators and mavericks have been given licence to power ahead without appropriate frameworks being put in place: now, with a huge power imbalance between the tech giants and the rest, balancing it back is central to reinstating tech democracy.
It’s up to consumers and regulators to decide how and where power should be distributed before anything else can be put in place. And with whom lies the responsibility of developing the next tech democracy framework? That's part of the problem - who knows.
Want to read more? Download our latest Chief Disruptor Magazine: The Great Tech Backlash.
REFERENCES