Federal Attack Will Ironically Enhance Big Tech Dominance
Politicians say they want to slow the dominance of big tech companies … yet many are pressing legislation that will ensure the opposite.
On Friday, President Biden signed an executive order he promises will increase scrutiny of tech mergers. That’s cool, except, in reality, these new measures only hurt competitors trying to get bigger.
It’s a gift to the largest tech firms, and investors should consider using any weakness to buy more shares.
You can’t completely blame the politicians. They’re getting bad advice from activists who are mostly fighting old wars that have already been lost.
A White House fact sheet offered Friday claims big tech is consuming its competitors rather than competing for labor. The notice also states that prices are rising for consumers, and anti-competitive practices are leading to fewer choices.
That’s not remotely true.
The competition for software engineers is fierce at Facebook, Inc. (Nasdaq: FB), Alphabet Inc. (Nasdaq: GOOGL), Apple Inc. (Nasdaq: AAPL), Microsoft Corp. (Nasdaq: MSFT) and Amazon.com, Inc. (Nasdaq: AMZN).
Entry-level compensation packages for software engineers can be $165,000 annually.
It’s true that not all of Amazon.com’s 500,000 American workers are software engineers, yet every employee is making at least $15 per hour with access to health benefits. That’s far above the national average. The wage was also hastened by stiff competition for unskilled workers.
Meanwhile, reducing prices paid by customers is the business model at most large tech firms. Excluding Apple — which is selling premium hardware — software is mostly free at Facebook and Google.
Even Microsoft’s latest Windows 11 update is free. And Amazon.com has become the world’s most valuable brand because consumers trust its selection and price points.
It’s hard to make the case that actual consumers are being hurt by free software and lower-priced goods and services only a mouse click away … what’s really happening is political grandstanding.
While the public overwhelmingly approves of big tech products, the leaders at these firms are easy targets. They have become obscenely wealthy during the pandemic when many Americans are feeling the pinch.
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For example, Jeff Bezos, chairman and founder of Amazon.com, has a net worth of $215 billion. He is now the wealthiest person on Earth.
Politicians on both sides of the aisle are battering ultra-rich tech CEOs like piñatas because populism has replaced problem-solving … but it will not work.
Biden’s prescriptions to remedy the problems he claims big tech created are embraced at Facebook, Google, Apple, Microsoft and Amazon.com. Managers there see gumming up tech mergers going forward for what it is: a hindrance to competitors trying to build scale to catch up.
Another prescription, restoring net neutrality, is also supported by big tech firms.
Net neutrality is the principle that all internet traffic should be treated equally. Large telecom companies opposed the concept, and it was repealed in 2018 by the Federal Communication Commission (FCC).
However, managers at the aforementioned big-tech companies — and others like Netflix, Inc. (NYSE: NFLX) — don’t want telecom companies as internet gatekeepers.
The power to throttle internet access — or introduce data caps — is bad for their businesses. It is also bad for consumers.
And that’s the bottom line.
There is no way to curtail the growth of big tech without hurting consumers. The big-tech platforms have become integral to our digital existence.
Managers are not cheating employees or customers. They’re winning because they have better products at better price points.
The numbers speak for themselves.
In 2020, a report from Edison Research found that Facebook is used by 63% of Americans over the age of 12. The social media website was the third most popular in the country, behind Google and YouTube, both Alphabet properties.
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Amazon.com has 147 million Prime members in the United States, and 70% claimed that they were extremely satisfied, according to research from Digital Commerce 360, an online data analytics firm.
Apple iPhone holds a 53% market share in the U.S., and Samsung Galaxy devices are a distant second.
Biden can sign executive orders until the ink in his Cross pen runs dry, but no politician can change the trajectory of tech business models without public support.
Longer-term investors should strongly consider buying shares of Facebook, Alphabet, Amazon.com.com, Microsoft and Apple into any meaningful decline.
Jon D. Markman