Big Tech vs Big Government

In yesterday’s Exponential Investor Premium, Eoin Treacy gave his analysis on the US Department of Justice’s antitrust probe into Big Tech.

If you missed it, you can join Exponential Investor Premium here.

Basically, Eoin said this investigation is already setting off alarm bells in the minds of investors, but is it really as bad as it seems?

He pointed out that Facebook was recently issued with a $5bn fine, but no further action.

In fact, the way Eoin sees it, this move may be nothing more than a money grab with a dose of PR, given the upcoming US elections.

In conclusion he said, “at the moment this antitrust probe doesn’t look like it has any teeth, but it is something we’ll need to monitor.”

In my 2019 Big Tech predictions article from back in January, I wrote about how Big Tech had lost the love of its users, its employees and the government:

Form my article, Five key tech trends for 2019, part 3: Big Tech, in January:

Losing the zeitgeist

Facebook is no longer the social media darling it once was. In fact, social media itself is no longer the darling it once was.

Something changed last year in the public’s perception of Facebook and Big Tech in general. I’ve referred to it a few times as the Big Tech backlash.

It’s been like a collective disenchantment. It’s almost like when a political party slowly disappoints everyone that voted for it.

You want to believe they are working for your best interests, but as the evidence mounts and the scandals surface, you slowly realise they were only ever out for themselves.

In 2018 we realised Big Tech is no better than our employers, the banks and our government. It is only out for what it can take from us.

It didn’t start out like that. I certainly most Big Tech companies set out to “make the world a better place.” But somewhere along the line they lost their way.

The Telegraph touched on this idea in an article earlier in the week:

An exciting company with a clear mission launches a product which grows rapidly. The demand for this product means the company requires more capital, and new shareholders jump in, sold on the idea of even faster growth. What was once a broad company mission becomes narrowly focused and, before you know it, the management compromising principles, even bending rules, to achieve unsustainable outcomes. 

My prediction was that the founders who left companies like Instagram and WhatsApp last year would launch their own social media companies, which would go on to challenge Facebook et al.

As I said:

Now as we look ahead, I think we will see a change in how new tech darlings grow.

In the past, Big Tech would simply buy up its competitors before they became a problem. Facebook famously bought both Instagram and WhatsApp. Google bought YouTube.

At the time, analysts baulked at the vast sums Google and Facebook shelled out for those upstarts. A few years later, and those same analysts were congratulating Google and Facebook for their shrewd business sense.

But when you make a deal with the devil, you eventually pay the price. Isn’t that how the story always goes? The devil’s deals are priced in souls. And so are Big Tech’s.

WhatsApp’s founders, for instance championed privacy. Privacy is not good for advertisers. And Facebook is paid for by advertisers. So, WhatsApp’s privacy focus became an issue. A big one.

To their credit, WhatsApp’s founders, Jan Koum and Brian Acton, stuck to their guns. They refused to betray their users. Instead they both quit the company, giving up $400 million and $850 million respectively.

Now that’s integrity.

Then in September, Instagram’s founders, Kevin Systrom and Mike Krieger, both unexpectedly quit.

They vaguely described their reasons for leaving in a blog post:

We’re planning on taking some time off to explore our curiosity and creativity again. Building new things requires that we step back, understand what inspires us and match that with what the world needs; that’s what we plan to do.

The big question now is, what are these companies’ founders going to start next?

Given their histories, there’s every chance it will be a big success.

And given that they have proven their integrity – something social media users love – people may be much more inclined to trust these new platforms than Facebook or Google.

That is, assuming they do go on to develop rival platforms.

So far, that hasn’t happened. But the Big Tech backlash, as I called it, has now gathered steam.

It’s no longer just about people deleting their Facebook accounts and telling everyone about it, as of this week, the US Department of Justice is officially investigating.

But what exactly is it investigating?

From Gizmodo:

The Justice Department is finally set to being its long-rumored review of monopoly concerns in the areas of online search, ecommerce, and social media, specifically targeting big tech companies such as Google, Amazon, Facebook, and Apple. An exceptionally broad probe, the agency announced this afternoon it would seek to learn if such companies had “reduced competition, stifled innovation, or otherwise harmed consumers.”

The FTC and DOJ, which both possess antitrust powers, have been prepping for action against these mega-corporations for months, divvying up which agency would pursue which tech giant. Some of the companies being probed by the DOJ, like Amazon, were initially believed to fall under the purview of the FTC alone, lending heightened seriousness to the review. The full extent of actions from either agency, however, remains largely open-ended, and it’s possible both agencies may pursue separate probes into the same companies.

News of the DOJ’s move comes less than two weeks after the FTC fined Facebook for $5 billion over its handling of the Cambridge Analytica scandal—a wrist slap congressional Democrats found woefully inadequate—and hours after the Washington Post reported the agency had approved unprecedented oversight measure over Facebook’s privacy policies.

The question now becomes, will these antitrust probes actually result in anything? Or are they, as Eoin stated, not much more than a money grab that will also bring those departments good PR as the US elections approach.

It’s also surprisingly well timed, given the huge government backlash we saw to Facebook’s Libra cryptocurrency project.

Perhaps it’s all connected…

What do you think?

Let me know: harry@southbankresearch.com

Until next time,

Harry Hamburg
Editor, Exponential Investor

Category: Technology

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