Much has been written about whether Big Tech has peaked. Meta recently reported its first drop in sales, amid a drop in online advertising. Amazon, Netflix and others have cut hiring. Many platforms have seen their stock prices crash this year, which is typical when rates rise and their growth slows.
But these are short-term trends that depend on the global economic cycle. The biggest change is that real flaws are starting to show in Big Tech’s core business model, which relies on globalization and the network effect to create scale. Three key policy and regulatory changes challenge the ability of platforms to cross borders and secure market share. And they’re doing it in a way that will prove more enduring and impactful than the ups and downs of stock prices in a global recession.
First, consider EU rules, approved in July, that will force 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 type of “interoperability” will make it harder for these companies to secure market share through the usual big tech land grab of luring users to a particular service and then locking them in by making it difficult the transfer of their data and information to rivals. .
When contact lists and other data are instantly portable, it becomes easy to move from one service to another. This may create a more competitive technology landscape over time, although privacy advocates fear it will also create more potential for data abuse as it will require a more open software paradigm which some say could compromise Security).
On the political front, the opposite is happening: it is becoming increasingly difficult for many tech companies to cross borders. Two weeks ago, Alibaba, the Chinese tech platform giant, applied for a primary listing on the Hong Kong stock exchange, ahead of new US financial rules that require more auditing of sensitive data than Beijing is prepared to. to allow. Some 200 Chinese companies could end up delisting in the United States due to regulations. This underlines the bipolar or even tripolar world that is developing in technology, with the United States, Europe and China diverging.
As talk of the Biden administration lifting tariffs on China, America’s business and political elite do not expect us to return to a single, unified global network. The Council on Foreign Relations recently released a task force report titled “Confronting Reality in Cyberspace: Foreign Policy for a Fragmented Internet.” He declared that “the era of the global internet is over” and that “Washington will not be able to stop or reverse the trend of fragmentation”.
There’s a lot of work to do on that front — the United States can’t even pass a federal privacy law. That’s partly because of fears on the political left that the tech industry has successfully watered down the proposed national legislation to the point of undermining the tough rules already in place in states like California. There are also concerns that a federal law could place too heavy an enforcement burden on a single agency, the Federal Trade Commission.
But the FTC, under its pioneering antitrust chairwoman Lina Khan, is already pursuing a potentially groundbreaking 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 virtual reality and was trying to “work its way to the top” rather than compete on its own. own merits.
The deal, highly unusual since it’s a small start-up acquisition rather than a merger between two behemoths, goes right to the heart of Big Tech’s model of capturing potential early-stage competitors. For example, Facebook’s acquisition of Occulus before Meta 2014, a booming virtual reality company, ensured that the upstart’s promising operating system was not in competition with its own. Its acquisitions of Instagram and WhatsApp have also prevented these companies from becoming social media competitors.
Meta is not alone here. Many start-ups have accused Amazon of acquiring their technology to launch competing products. And Google has snapped up hundreds of potential competitors. But if the current deal, which will be played out over years, succeeds, it would profoundly change Big Tech’s tactics of stifling young competitors.
All of this, in turn, would begin to undermine the network effect that has allowed the largest companies to achieve such size and concentration. It could even open the door to shattering platforms. 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 of this.