Everyone makes predictions. It’s a sport that’s especially tempting as 2021 dawns. Will the market crash? Are there wars looming? Will tech giants get even bigger?
No one raised an eyebrow when Mark Zuckerberg bought tiny Instagram in 2012 for $1 billion. Lately, regulators want to unwind the deal, as well as the one for WhatsApp, which might well spell the disintegration of the Facebook empire in 2021.
But this is not only about Facebook, or Amazon, Google, or Apple. It is a global shift of the boundaries within which monopolies can function. Here is a prediction: 2021 will be a year that will unwind the “data advantages” among tech giants.
How big tech is cornering markets
Datasets become exponentially more valuable when you combine them. When Google introduced Gmail, it built a new dataset of people’s identities. In addition to the existing search engine dataset, Google then also had people’s email addresses and IPs. As a result, Google’s AdWords can now provide more refined targeting for advertisers.
The same happened with Google Maps. When Google tied people’s identities and purchase intent to their geo-locations, advertisements became even more accurately targeted to consumers.
In today’s economy, this ability to predict behavior, curate offerings, and fulfil orders automatically offers the single most important advantage: helping an organization expand. Sure, the initial entrepreneurial insights are still important — discovering your customer’s needs is the first step. But once you have a minimally viable product, your ability to scale determines your success.
That’s why tech giants have been snapping up start-ups — buying other businesses has been an important route to growth. It’s been harder for entrepreneurs to stay independent, and IPOs have been on the decline.
But what we see now is tech giants being blocked from buying up small firms.
The US Justice Department recently blocked Visa from buying Plaid, which provides payment processes and works in a similar way to Stripe. Plaid provides the plumbing that lets apps like Venmo, a cash transfer service, or Robinhood, a stock trading platform, access user bank accounts.
Today, Plaid acts as a link between fintech apps and some 11,000 financial institutions. Visa and Mastercard aid in electronic fund transfers between bank accounts, but Plaid can take out these middle men. One day, consumers might make purchases without a debit or credit card, paying merchants directly from their bank accounts. That’s why Visa wants Plaid — it can’t afford to miss the next big thing.
Regulators worry that an acquisition could “deprive American merchants and consumers of this innovative alternative to Visa.” This change in attitude indicates that companies may no longer be able to simply buy out their competition. Many regulators globally have broadened their field of view, and “consumer welfare” has a wider scope. Regulation seems to indicate that pricing is no longer the only consideration. Instead, there has been a shift towards protecting a competitive marketplace.
The aim is to prevent the concentration of industrial power, because too much concentration always leads to systemic risks. This is what happened in China.
China leads the charge to stricter regulation
Just hours before the launch of Ant Group’s mega IPO, Chinese authorities cited “major issues” with the company. The release of the US$300 billion fintech disruptor’s IPO has now been put on pause.
At the heart of Ant Group is a product called Alipay, created by Alibaba in 2004 as a payment tool for its online marketplaces. Alibaba then went into financial services, such as lending, wealth management, and insurance, all of which were offered through Alipay. Like all things in China, Ant Group’s growth has been epic.
And that’s why regulators have started to worry. As Ant Group underwrites loans, it relies not on human credit officers, but on algorithms. The data fed into those algorithms reflect the long boom of China’s economy. There’s likely no downturn in the model. There has been no Black Swan event in China. The skewed set of historical data, combined with Ant Group’s reach, can pose a systemic risk for the entire country. This is the problem with the concentration of industrial power.
Tech giants are led by human CEOs, and they may not always know all the systemic risks they have created outside their own enterprise. The only way to prevent a catastrophic outcome is to limit the size and reach of a company.
Regulators are now trying to do just that. No one is saying Amazon is monopolizing retail. It is not. Its revenue is still smaller than Walmart’s. No one is saying Amazon is charging prices that are too high and hurting consumers. But regulators are saying Amazon’s own rules are unfair to its third-party merchants who sell through Amazon.com.
Similarly, Facebook has competition like TikTok. But regulators are unhappy that Facebook is leveraging its userbase and information. When it quickly copies Snapchat’s features in order to destroy a competitor, the game doesn’t look fair.
Where do we go from here?
In each of these examples, it’s not only the market share won by the tech giants that’s causing concern. It’s also the ease with which a company can cut across all verticals and use its data advantage to overwhelm competition. What might result from this is that tech giants may simply be barred from entering certain sectors, such as healthcare, finance, and transport, entirely.
It wouldn’t be the first time. The reason AT&T didn’t participate in the computer business was not for a lack of technology — it had been prohibited from doing so in a 1956 agreement after the company was deemed a “natural monopoly.” Until it was broken up in 1984, AT&T had been barred from entering the computer business.
What can come out of banning large companies from entire sectors? We can protect and make space for progression and development. Regulators can help to create a level playing field, giving new players a chance, and stopping larger companies from becoming such enormous monopolies that their self-preservation hinders progression — which will benefit us all.
And if this prediction turns out to be true in 2021, we are called to be optimistic after the gruesome year of 2020.
P.S., What are your predictions about big tech in the coming year? Will you see governments reining companies in? Share your thoughts with us.
An earlier version of this piece was coauthored with Angelo Boutalikakis and published by The Conversation.
Great insights Howard! When I see the ever-growing strength of tech giants on the back of wealth of information gathered from the very customers they serve and compare that to how much benefit the consumers are actually getting (or losing) I can why it’s not just the authorities who are seeing unintended systematic risk but also more consumers and advocate groups are seeing imbalance of cost-benefit equation – something tech giants of our generation must consider to bring more inclusiveness perspective.
Another great article. Very hard to balance the public interest(s). Leave Amazon alone, unrestrained and you probably get some bad outcomes. Restrain the guys who are best at data from applying that skill set to health and we possibly substantially delay improvements in the health area until someone else fills the space.
What happens to all this stuff ‘in the limit’! It’s a big experiment and I guess it’s in progress!
Well written and packed with a lot of information that we need especially today that technology is one of the fastest rising in the economy.
Thanks for this blog Howard. It’s a good read. We can have an idea on what will be the future of our technology this upcoming year.