over 3 years ago • 2 mins
Competition regulators on both sides of the Atlantic want to take a chunk out of the tech giants – and while a high-profile CEO grilling planned for Monday has been postponed, this week’s earnings may shed more light on what exactly is at stake 🥩
“Antitrust” authorities loom largest around major company mergers. European regulators, for example, are currently assessing whether the $50 billion combination of carmakers PSA and Fiat Chrysler would have too big a slice of the small van market.
Such authorities have long focused on promoting healthy competition in order to keep consumer prices low. But Big Tech’s rise demands a broader conception of damaging dominance. Well-funded online giants pursuing growth over profit may actually offer lower prices in the short term – but simultaneous increases in their control of infrastructure and data could create dangerous concentrations of power.
Some of the main areas currently under scrutiny include Apple’s App Store and Apple Pay, Google’s search engine (particularly on Android phones), and Facebook’s Marketplace classifieds ads network – which will shortly lose a big-name competitor in eBay. And just last week Microsoft joined the party as workplace messenger Slack complained that the company’s Office software bundles were an abuse of power 😖
These business lines are among the tech firms’ most lucrative. For example, App Store subscription commissions alone bring Apple around $1 billion every month, underpinning its crucial pivot towards highly profitable services over hardware. Being forced to reduce those fees, or open up iPhone contactless payments to other providers, would hit the firm’s earnings and its share price while benefiting rivals.
The examples of Facebook and Alphabet suggest that even large fines for anti-competitive behavior may have little long-term effect. Still, research firm Morningstar warned in March that a combination of harsh fines and regulations could see both stocks fall more than 10%.
The wholesale breakup of Big Tech firms looks unlikely, particularly given that Microsoft managed to escape that fate in a landmark case 20 years ago. Interestingly, however, it might actually be beneficial for some: investment bank Jefferies recently suggested that Amazon’s constituent parts could be worth 50% more if separated 😳
While many formal charges remain to be brought by regulators, any evidence of expanding dominance in tech firms’ forthcoming earnings may help encourage action. Watch this space…
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