Netflix is an amazing digital success story – starting out almost 15 years ago as a predominantly DVD subscription service, Netflix was able to pivot along the way and take advantage of rapidly evolving mobile technology and ever-improving internet speeds to become one of the largest video distribution networks on the planet. The success of Netflix is an excellent example of “creative destruction,” a term originated in the 1940s by economist Joseph Schumpeter, who described it as the “process of industrial mutation that incessantly revolutionizes the economic structure from within, incessantly destroying the old one, incessantly creating a new structure. This process of creative destruction is the essential fact about capitalism.” However, this fantastic success story may not have occurred had there been a monopoly by large “Legacy Media” companies who controlled both content creation and distribution.
However, if we look at the “Big Tech” space now we are seeing this monopoly by a few players, which in our opinion, is stifling innovation and competition. The lack of antitrust enforcement has allowed big information technology companies such as Google, Facebook, Amazon, and Apple to dominate the market and concentrate their economic power. This power of consolidated monopolies are hindering technological advancement in two ways:
- First, because of their dominance on the market, big firms tend to innovate less and focus more on quarterly earnings as opposed to long-term investments. Thus, they tend to focus on slight product improvements rather than on groundbreaking research (that leads to benefits for the consumers) since there is very little ROI on investing huge sums of money in disruptive innovation (that could fail) when there is a monopoly. Apple illustrates a clear example of this phenomenon. In 2007, Apple launched the iPhone which in turn created a new market by increasing internet access, thus challenging the notion that one needs a laptop in order to access the internet. While Apple has evolved to collapse (large scale integration) the internet into devices, such as watches, and a laptop-smartphone hybrid, the iPad, it has not seen much recent innovation comparable to its iPhone, iPad, or Apple Watch. Instead, its new products are not innovative and rather merely version upgrades with high margins since they are a monopoly in their market with absolute brand-loyal customers.
- Second, monopolies have an incentive to slow the pace of technological change in order to increase their profits from existing products. As a result, these large tech companies have been engaging in large mergers and acquisitions (M&As), which have been detrimental to innovation. Not only do these M&As allow big tech companies to purchase smaller players and redirect attention onto their own platforms rather than promote new innovation, such as AI technology, but they also prevent many small businesses from ever starting up in the first place.
This, along with predatory tend to hamper smaller firms so much so that most have stopped entering the market and investors are more hesitant to invest in them. Indeed, tech giants are responsible for the choking of small technology startups: it has become harder for startups to secure an investment in order to get off the ground. Moreover, even if these companies manage to get off the ground, tech giants are buying up these little firms and directing them to focus on their platforms instead. However, these acquisitions have seldom led to a successful product and the acquired company’s products are shelved or the technology is embedded as a feature in another core offering.
While some might claim that technological innovation has reached a plateau (which would explain this lack of innovation), we believe that there are a number of emerging technologies, ranging from 3D printing to cloud technology, that can be truly disruptive and create massive transformations in the modern technology industry. Thus, while innovation is far from its peak, the incentive to innovate has reached an all time low because of the behavior of these “Big Tech”.
Consequently, retroactively enforcing antitrust laws (i.e., breaking up tech companies) would have clear benefits. The last major antitrust case involving big tech was the breaking up of Microsoft in the 1990s. The federal government sued Microsoft for violating antitrust laws for its attempt to expand its dominance beyond the computer operating systems market into the web browsing market. The settlement prevented a formation of a browser monopoly, leaving consumers with a plethora of search engine options. The government’s antitrust case was critical in clearing the path for current big tech companies, such as Google and Facebook, showing a clear benefit to the consumer. Retroactively enforcing these laws will also force the federal government to sue companies currently engaging in anticompetitive behavior that is responsible for dwindling innovation and competition. It would force companies to innovate and create cutting-edge technology in order to maintain their edge which will enable society to continue to advance technologically.
Hence, it is our opinion, that Government regulators should seriously consider the “break up” of “Big Tech” companies to encourage meaningful competition, support innovation in order to provide benefits the consumers in a big way without hindrance.