The Shadow Of Regulation Looms Large Over Big Tech

It was once hard to see governments taking on the likes of Facebook and Google, but not now

At anyone’s political height, it’s hard to imagine how they might fall. At the height of Apple, Google, Facebook and Amazon, it was hard to imagine any government daring to take on companies whose mottoes were “Don’t be evil,” or “Making a dent in the ­universe,” or “Your margin is my opportunity,” or “Move fast and break things”.

At the height of the golden dream of California, Peter Thiel, co-founder of PayPal, wrote in his 2014 best-seller Zero to One that “competition is for losers”. Thiel advises his readers that “if you want to create and capture lasting value, look to build a monopoly”. The Wall Street Journal reprinted the book excerpt, and Stanford University invited Thiel to share his business insights with undergrads by teaching a class known as “CS 183: Startup”.

That monopolistic behavior, common in the age of the “platform economy”, is well understood. Economists and business researchers routinely use the “network effect” to describe the value of a platform, which largely depends on the number of users on either side of the exchange, differing from a traditional economy. The more riders a ride-sharing platform has, for instance, the more attractive it becomes to drivers, leading even more people to use it. And once a platform reaches a certain size, the thinking is that it becomes too dominant to unseat. In other words, a platform economy has no room for multiple players; the market equilibrium will forever move towards a monopoly. That’s how Google dominates search engines, Facebook rules social networks, ­Twitter towers over microblogging, and Netflix, YouTube and Spotify have cornered the movie-streaming, video-sharing and music-streaming markets.

Any data scientist would further confirm that data sets become geometrically more valuable when you combine them. Combined data sets often reveal insights and business opportunities that could not have been imagined previously. When Google introduced Gmail, it built a data set of identity in addition to its search engine data set. Combining the two data sets created a geometric increase in value, as future AdWords ads would provide more value to advertisers and, by extension, to Google. The same thing happened again with Google Maps, which enabled Google to tie identity and purchase intent to location. In each instance, it was only after Google had introduced a new service that the company could then find new scenarios for which combining sets of user data would be even more powerful.

That dream of universal domination is however on the edge of turning into a nightmare.

The Justice Department is claiming jurisdiction over Apple, potentially following the Dutch investigation into it for favoring its own apps, like Apple Music, over third-party apps such as ­Spotify, in addition to the 30 percent commission the iTunes Store already levies.
More drastic is perhaps India, where new regulations have been designed to tame the “platform economy”: a platform maker cannot participate as a player and must stay impartial. Amazon sells its own private labels, AmazonBasics, around the world, but in India, Amazon will soon only operate its marketplace and nothing else. It’s the same logic that previously only radicals like ­Elizabeth Warren or Tim Wu dared voice. Today, governments are considering enacting such policies.

In Europe, consumers must give consent before a company can start collecting personal data, and companies must explain why they are collecting the data and how they are using it. They are not allowed to use that data for different purposes later on. There has been talk, and even a legal proposition mounted in Germany, of forbidding Facebook from integrating Messenger, Instagram, and WhatsApp as it seeks to combine user data from different sources – another ­instance where an FTC investigation might follow.

Yet another German initiative proposes that dominant platforms must share bulk, anonymized data with competitors, meaning all transport firms would have access, for example, to Uber’s information about traffic patterns in Europe.

Activist Rebecca Solnit likes to say, “Every protest shifts the world’s balance.” When Silicon Valley has wilfully squandered its goodwill and the tech giants’ likeability has sunk irreversibly low, the little guys, the little nations, will begin to erode their positions slowly and gradually until one day, the trillion-dollar valuation will come crashing down under its own weight.


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