The Perils of Breaking up Big Tech

In a recent blog post, US Senator Elizabeth Warren proposed something radical. She wants to break up “Big Tech.”

Here at Origin, we try not to spend too much time worried about politics – we have tons of work to do to grow our business, and there are plenty of others who are better placed than us to comment. But we are in the technology business, so we’re invested in the relationship between technology and politics and how that’s going to play out over the years ahead.

It’s getting harder and harder to argue that Big Tech doesn’t wield outsize influence in the global economy and our societies. There’s Facebook and its treatment of user data. Then there’s Amazon’s punitive treatment of publishers, small retailers that operate on its platform and even its bully tactics in seeking to extract tax breaks from cities as part of its HQ2 beauty parade. Even Google, whose original was original (now quietly retired) motto was “Do no evil”,has explored building a censored search engine for the Chinese government.

Senator Warren could be on to something. Capitalism is built upon the fundamental premise of competition, and when certain entities grow to become monopolies, governments have a responsibility to step in and ensure the market continues to function properly.

Antitrust is an area of regulation that hasn’t received enough attention in recent decades (Microsoft notwithstanding), and using it as a lever to get tech behemoths to play by the rules is important. Exploring principles-based antitrust and anti-competitiveness is a much cleaner way to regulate outsized influence than to write specific regulation prohibiting certain behaviours, as that regulation tends to pile up, making it harder and harder for businesses across the board to operate.

That being said, there are 2 important implications of Elizabeth Warren’s strategy.

Firstly, she references the VC industry’s “plight” as a key reason for her plan, writing, “Venture capitalists are now hesitant to fund new startups to compete with these big tech companies because it’s so easy for the big companies to either snap up growing competitors or drive them out of business.” Yet, the VC industry itself has come out saying, “not so fast”.

Ben Narasin of New Enterprise Associates, believes that “We slow down our country, our economy and our ability to innovate when the government becomes excessively aggressive in efforts to break up technology companies” and Balaji Sirinivasan, CTO of Coinbase, thinks that “If big companies like Google, Facebook and Amazon are prevented from acquiring startups, that actually reduces competition.”

There’s a reason that high-profile VCs and startup executives are pushing back – Big Tech companies provide a natural exit for younger, smaller portfolio companies. One of the big differences between the funding environment in the US and Europe is the fact that the US has many natural buyers of promising startups and scaleups in the form of the major tech companies. This allows early stage investors to invest with more confidence, as they know that if the company is even reasonably successful, they should get a nice exit. Europe doesn’t have such a deep market for startup acquisitions, so founders and VCs either have to wait for one of the American tech giants to come shopping over here, or wait for an IPO. If those natural buyers were smaller, or less spendthrift, many companies may never achieve an exit and thus, may not obtain funding in the first place.

(Slight aside: it could be a good thing for the long term if M&A quiets down, as it would help weed out bad ideas faster and force startups to think sooner about business models and profitability.)

The second implication of Warren’s plan is harder to unpick, because it relates to national security and geopolitics. When we think of Big Tech, we think of the FAANGs plus maybe Microsoft. Though they’re all American companies, their influence is global. However, there are many other tech giants operating globally, including the likes of Tencent, Alibaba, Baidu, Ant Financial, and others. Given the recent prickliness surrounding Huawei and its distribution of 5G technology, one can see the benefits to allowing the American tech giants to continue to grow, so there continues to be competition on a global scale.

Whichever way policymakers go, it’s important that they eschew punitive and populist policies. The point is to ensure that competition continues to thrive at every stage, between small businesses and Amazon, all the way up to the 5G network providers battling it out on the international stage.

Wherever there is competition, consumers benefit. However if companies are just simply big, but not anti-competitive, it’s important to recognize that M&A is an important component of the complex ecosystem that makes Silicon Valley so successful as a centre of innovation. Successful startups get acquired, founders become angel investors and mentors in the next generation of startups, and the ecosystem continues to grow and thrive. Attacking those at the top of the food chain imperils that. We have only to look at the divergent paths of the US and European economies post financial crisis to see how different political regimes can lead to divergent outcomes.

To effectively regulate the technology sector, politicians must first seek to understand it. That means speaking to founders, investors and users from across the ecosystem to build a nuanced picture of how political policies might affect end consumers. After all, technology is no different to any other business – the customer might not always be right, but they should always come first.