No one raised an eyebrow when Mark Zuckerberg bought tiny Instagram in 2012 for US$1 billion. Now regulators want to unwind the deal, by forcing Facebook to sell Instagram, and WhatsApp. This move may spell the disintegration of the Facebook empire.
But this is not only about Facebook, or Amazon, Google, and Apple. It is a global shift of the boundaries within which monopolies can function.
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 funds 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. As the late Intel CEO, Andy Grove said, only the paranoid survive.
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 – there has been a shift towards protecting a competitive marketplace.
Cornering the market
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 identity and purchase intent to their geo-location, advertisements became even more accurate to target consumers.
In today’s economy, this ability to predict behaviour, curate offerings, and fulfil orders automatically, offer the single most important advantage: helping an organisation expand. Sure, the initial entrepreneurial insights are still important – discovering your customer’s needs is the first step. But once you’re past the stage of a minimal viable product, your ability to scale determines your success.
That’s why tech giants are sweeping up the start-up field – buying up other businesses has been an important route for growth. It is also harder for entrepreneurs to stay independent and IPOs have been on the decline. And in the case of Instragram, its co-founders kept fighting against Zuckerberg even after the acquisition. Eventually, they abandoned Instagram and left Facebook altogether.
What we see now is the blocking of tech giants from buying up small firms. Or, in the case of Facebook, it might unwind its deals executed a decade ago. The logic is to prevent the concentration of industrial power, because too much concentration always leads to systemic risks.
China leads the charge to stricter regulation
This is what happened in China. 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 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. It 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. China now aims to limit it’s size and reach, and that is what regulators are navigating across the globe.
When it comes to Amazon, no one is saying that the company is monopolising retail or that it is charging prices that are too high and hurting consumers; its revenue is still smaller than Walmart’s. But regulators are saying Amazon’s own rules allow it to use data from its third parties to have an unfair advantage over its competition.
Similarly, Facebook also fears competition. In one example it reportedly slowed down Snapchat’s growth by copying and using features created by Snapchat. Vanity Fair called it a “campaign to destroy Snapchat”.
The ease and speed with which large companies can use such tactics reveals the extent to which the playing field is not level.
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 at which a company can cut across all verticals and use its data advantage to overwhelm competition. What might emerge from this is that tech giants may simply be barred from entering certain sectors entirely, such as healthcare, finance, transport, and more.
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 could come out of banning large companies from entire sectors? You protect and make space for progression and development. Regulators can help to create a level playing, giving new players a chance, and stopping larger companies becoming such enormous monopolies that their self-preservation hinders progression – which benefits us all.
Howard Yu, Professor of Management and Innovation, International Institute for Management Development (IMD) and Angelo Boutalikakis, Research associate, International Institute for Management Development (IMD)