The past few weeks have seen a series of verdicts against Alphabet’s monopoly power, including the risk of splitting the company. Simultaneously, the government is investigating the tech monopolies in AI. Lastly, Microsoft experienced a critical failure in their Azure stack, and Crowdstrike’s sloppy software testing took down millions of Microsoft Windows machines on the same day.
These issues point to significant problems in our economic system, especially in the tech world. Our leading Tech companies have managed to entrench themselves so deeply into the world that we seldom have a way out. However, it’s crucial to remember that we can change this as individuals and as a society. This week, let us start by examining how we got into this weird position.
Our View on Big Tech
We often think of the big tech companies in terms of one of their successful products. Windows, Google Search, Facebook, and the iPhone are all used synonymously for the companies behind him. Google and Facebook even tried to rebrand themselves as companies to break this association. Yet, millions of dollars in branding efforts haven’t managed to break the connection.
The media often enhances the view by reusing product maker descriptions: “The iPhone maker closed a strong second quarter” or “The search company is facing criticism on how it positions its products.”
Yet, these companies are so much more than their core products. Take Amazon as an example. The humble bookseller has gone from selling books to creating a marketplace for others to goods manufacturer and technology provider. Today, you don’t have to leave their ecosystem to get anything from food to entertainment. Yet, they have abused their market power so that the FTC could identify many anti-trust behaviors. Likewise, it might be the first big tech company blocked from investing in AI companies.
Hidden Hedge Funds: Building Monopolies
Yet, despite their image as technology builders, big tech companies today are acting more akin to financial investment firms. Their investment arms heavily invest in start-ups to secure themselves access to technology or deny their rivals. The latest AI investments can serve as the best example.
Big tech is also very open to buying up competitors or product-related companies to strengthen their hands, enhance their portfolio, or break into new sectors. Meta, then Facebook, buying up Instagram to capture the post-Facebook generation is an excellent example of the former. On the other hand, Microsoft’s purchase of Hotmail and later Activision-Blizard are two good examples of the latter.
Yet, in a world where money and access count much more than a great tech idea, this behavior has created behemoths controlling our lives. Using their cash reserves for investments, the Big Tech leaders around the world were able to position themselves as the dominant market powers. Given the cost of AI, they might be able to entrench their positions further.
Bundling Ecosystems for Stronger Monopolies
Microsoft 365 is the best example of a bundled product. You get all the office products, the storage on OneDrive, your outlook.com address, and so much more. Interestingly, these products only came into Microsoft’s offering after being widely successful elsewhere. OneDrive followed DropBox, Office Online followed GSuite, Teams followed Zoom, and E-Mails were a dime a dozen before. All were built on the success of desktop Office, just at a short-term better pricing.
More interestingly, the price didn’t increase initially with the new offering. For example, it stayed the same when Teams joined the application zoo.
Thus, there was an incentive for competitors to cut out the competitors from Zoom or WebEx and get more entrenched in the Microsoft Ecosystem. All build on the market dominance of office suits.
Weak Anti-Trust Enforcement
Lastly, thanks to weak enforcement, monopolies flourished. The US has been investigating the monopolies of big tech companies since the mid-2010s, with an uptake in 2020. Yet, while the investigations showed an apparent uptake, none resulted in any enforcement actions.
In fact, despite mounting evidence that big tech was systemically hampering competition and disadvantaging consumers, the companies were allowed to continue in the acquisition spree. Thus, all of them were able to broaden their reach and strengthen their product portfolio.
Enforcement outside the US was only marginally better. For example, the EU forced Microsoft to unbundle Teams from the rest of the Microsoft 365 suit, thereby giving Zoom and other competitors a fighting chance. Likewise, the EU has cracked down on Google’s business lately. Yet, most of them attacked the symptoms without threatening the acquisition sprees that have led to the concentration of power.
Monopolies’ Continued Growth
Big tech companies have established their dominant position by systemically using their cash to buy out their competition, close back-door deals, and bundle their products into one. Yet, for the average consumer, the conglomeration of products seldom looks like a hindrance to innovation. Most of us wouldn’t see bundling Teams with Microsoft 365 at no extra cost reducing the incentive to buy a competitor’s product.
Understanding that the monopolies are trying to hide under the veneer of related companies and seemingly unconnected products to keep us in an ecosystem is critical to understanding how we went wrong and leading us to the next entry of how to improve the situation in the future.