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    • Apr 6, 2022

Big Tech: Big Help or Big Problem?

Big Tech refers to the five most dominant companies in the information technology industry in the United States: Amazon, Apple, Google, Facebook, and Microsoft. These companies have made life far easier for the American population. For example, Amazon has created a system where consumers can obtain their desired product in under a day and have it delivered right to the consumer’s doorstep. Apple has created the most notable hand-held phones on the entire market, allowing people to access the Internet, social media, and video games in an incredibly easy fashion. Google has created a search system where people can find the answer to nearly any question in 0.000000051 seconds (at least Google claims to be that fast). Facebook has created the Facebook and Instagram apps, allowing people to connect with loved ones from across the world in a matter of seconds. However, their incredibly convenient products make it easy for people to forget the drawbacks they can have on the population’s privacy and the tech industry.


The Kill Zone

Large tech companies kill competition and startup companies to maintain their market dominance. Companies like Google are especially susceptible to competition, for if a startup comes up with a set of algorithms that runs more accurately and efficiently, Google runs the risk of being replaced or, at the very least, having its market dominance threatened.[1] As a means of protecting their status, tech giants have created The Kill Zone. Essentially, once a startup enters the tech industry, Tech Giants, like Google, will either develop and release a copied product or pay large amounts of money to acquire the startup.[2] Though the owners of the startup will benefit from the latter option, the competition in the market itself suffers because that is one less company to compete against the Tech Giants. The Tech Giants kill innovation in this same manner. Google, Facebook, Amazon, Apple, and Microsoft have very little incentive to innovate (beyond very minor changes to products) because they are already at the top of the market, and they know that innovating will not significantly increase their market share.[3] Thus, when a startup enters the tech industry with an innovative product, the Tech Giants will acquire that company and then dissolve their innovation. In fact, Big Tech has acquired over 500 companies in the last decade alone.[4]

Just the perception of The Kill Zone is preventing startups from getting off the ground. Tech startups depend on venture capitalists, investors that focus on new, small-sized, high risk businesses that show potential for explosive scalability, to fund their operations.[5] But the sheer size of Tech Giants is causing venture capitalists to stray away from investing into tech startups. They fear that a company like Amazon may copy their product instantaneously, which would make their investment in the startup next to useless.[6] As a result, Pitchbook, a research company, found that in 2017, the number of funding rounds for tech startups had decreased by around 22% since 2012. Specifically, it has become significantly harder for tech startups to secure the first financing round, which is often the most important to get the company’s operations up and running.[7] This has been extremely problematic for tech startups as a study conducted by Fortune Magazine indicates that 30% of all tech startups fail solely because they lacked funding.[8] Consequently, the decline in high-growth entrepreneurship in the technology industry is directly proportional to the decline in aggregate productivity growth in the industry. In short, when monopolists, like the Tech Giants, stamp out startups, they kill productivity in the economy.[9]


Privacy Infringement

Many of the Tech Giants have been facing growing backlash over the possible abuse of their users’ personal privacy. Facebook, specifically, has been widely criticized for the lack of protections it has provided to users on its social media apps. In 2018, people were heavily criticizing Facebook after the company announced that the data of around 87 million people may have been improperly shared with Cambridge Analytica. That same year, Facebook said that hackers had gained access to nearly 50 million accounts.[10] On top of infringing on people’s privacy, Facebook is also guilty of being a bystander while their app was used to spread misinformation. In October, former Facebook employee Frances Haugen leaked thousands of documents indicating that company executives knew Facebook helped spread misinformation but did not do enough to prevent it.

In an attempt to put their issues relating to their users’ privacy behind them, Mark Zuckerburg is changing Facebook’s name to Meta.[11] Company executives likely believe that this rebranding effort will make people perceive that all of Facebook’s (or Meta’s) issues are behind them. However, changing the name of a company does not change the fact that Big Tech has so much power that their platforms are capable of infringing on people’s privacy to massive degrees. It should be noted that some Tech Giants have updated their policies and technology to protect their users’ privacy. For example, Apple’s recent ad privacy update makes it so that “every iPhone app that shows ads or sells data to advertisers will be required to show a pop-up that says, ‘[This app] would like permission to track you across apps and websites owned by other companies.’ You’ll be able to choose between ‘Allow Tracking’ or ‘Ask App Not to Track.’” This gives people more control over what happens with their data, and it disempowers data brokers that exchange information about users. While it is a praiseworthy step forward in the name of privacy protection, policies like this may actually worsen the monopolization of the tech industry. Apple has received criticism over this update because many small businesses rely on mobile advertising through Apple’s platform, which was impaired with the recent update.[12]

The main issue with moves made by Big Tech in favor of privacy protection is that they often come at the expense of having a competitive tech sector. Similar to Apple’s recent update, Google’s new “privacy sandbox” will “protect users from the privacy invasions caused by third-party cookies, which track us all over the Internet.” However, this change will make advertising more difficult for other companies, but Google will be solidified as “the web’s advertising superpower.”[13]


The Solution?

When running for President, Elizabeth Warren released a plan that would utilize antitrust laws to break up the Tech Giants and regulate them more heavily. Warren claimed, “Left unchecked, concentration will destroy innovation. Left unchecked, concentration will destroy more small companies and startups. Left unchecked, concentration will suck the last vestiges of economic security out of the middle class.”[14] While the use of antitrust laws is interesting, breaking up the Tech Giants may not be the best route. Despite the moves they have made to monopolize the tech sector, without companies like Apple, Amazon and Google, daily life may be significantly hampered. Instead, antitrust laws can be used in the form of banning future anticompetitive mergers, since this is how the Tech Giants primarily kill competition. Certain antitrust laws could also prevent the Tech Giants from copying startups’ products and releasing them in the market. At the very least, antitrust laws would put tech giants on guard and occupy them with court cases, which would allow startups to thrive.[15]

However, antitrust laws can be a slippery slope if utilized incorrectly. In the 1960s and 1970s, the United States were too aggressive in terms of their enforcement of antitrust laws.[16] At the time, the United States challenged even the smallest of mergers that did not even affect the market’s competitiveness.[17] To provide some insight, in the Brown Shoe Co., Inc. v. United States case, the Supreme Court blocked a merger between two shoe companies that would have only given the companies an extra 2% share of the national shoe market.[18]

Smaller companies are far less economically efficient than big companies. When the United States becomes overly aggressive in enforcing antitrust laws and refuses to let companies grow in size, it makes the country as a whole less economically efficient. When dealing with the Big Tech problem, it is important to use antitrust laws moderately and effectively: enough to avoid an anticompetitive market but not so much that the lives of millions of people are hampered.


 


[1] Michael Shore, How Google and Big Tech killed the US Patent System, IPWatchdog (November 11, 2021), https://www.ipwatchdog.com/2018/03/21/how-google-and-big-tech-killed-the-u-s-patent-system/id=95080/

[2] The Economist, American tech giants are making life tough for startups, The Economist (June 2, 2018), https://www.economist.com/business/2018/06/02/american-tech-giants-are-making-life-tough-for-startups

[4] Jonathan Tepper, American Corporations Are Winning Their War on Capitalism, Bloomberg (November 26, 2018), https://www.bloomberg.com/opinion/articles/2018-11-26/tech-monopolies-strangle-economic-growth

[5] Lili Radai, 100 Top Venture Capitalists in the USA, Valuer (March 16, 2021), https://www.valuer.ai/blog/100-top-venture-capitalists-in-the-usa

[6] Olivia Solon, As tech companies get richer, is it ‘game over’ for startups, The Guardian (October 20, 2017), https://www.theguardian.com/technology/2017/oct/20/tech-startups-facebook-amazon-google-apple

[7] The Economist, American tech giants are making life tough for startups, The Economist (May 31, 2018), https://www.economist.com/business/2018/06/02/american-tech-giants-are-making-life-tough-for-startups

[8] Erin Griffith, Why startups fail, according to their founders, Fortune (September 25, 2014), https://fortune.com/2014/09/25/why-startups-fail-according-to-their-founders/

[9] Jonathan Tepper, Personal View: Winning the war on capitalism, Crain’s Cleveland (December 2, 2018), https://www.crainscleveland.com/opinion/personal-view-winning-war-capitalism

[10] Sam Schechner, Privacy Problems Mount for Tech Giants, The Wall Street Journal (January 21, 2019) https://www.wsj.com/articles/privacy-problems-mount-for-tech-giants-11548070201

[11] Musadiq Bidar, Facebook to change corporate name to Meta, CBS News (October 28, 2021), https://www.cbsnews.com/news/facebook-name-change-meta/

[12] Gabriel Nicholas, Be wary when Big Tech says it’s deafening your privacy, Boston Globe (April 11, 2021), https://www.bostonglobe.com/2021/04/11/opinion/be-wary-when-big-tech-says-its-defending-your-privacy/

[13] Gabriel Nicholas, Be wary when Big Tech says it’s deafening your privacy, Boston Globe (April 11, 2021), https://www.bostonglobe.com/2021/04/11/opinion/be-wary-when-big-tech-says-its-defending-your-privacy/

[14] Sheelah Kolhatkar, How Elizabeth Warren Came Up With A Plan To Break Up Big Tech, New Yorker (August 20, 2019), https://www.newyorker.com/business/currency/how-elizabeth-warren-came-up-with-a-plan-to-break-up-big-tech

[15] The Economist, Tech giants face new threats from the government and regulators, The Economist (March 16, 2019), https://www.economist.com/united-states/2019/03/14/tech-giants-face-new-threats-from-the-government-and-regulators

[16] William E. Kovacic, The Modern Evolution Of U.S. Competition Policy Enforcement Norms, Antitrust Law Journal (2003), https://www.ftc.gov/sites/default/files/documents/public_statements/modern-evolution-u.s.competition-policy-enforcement-norms/0304modernevolution.pdf

[17] Richard Pitofsky, Past, Present, and future of Antitrust Enforcement at the Federal Trade Commission, Georgetown University Law Center (2005), https://scholarship.law.georgetown.edu/cgi/viewcontent.cgi?article=1546&context=facpub

[18] Brown Shoe Co., Inc. v. United States, 370 U.S. 294 (1962)


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