Is it time to break up the tech giants?

15052019_tech giants

Is it time to break up the tech giants?

Last week the New York Times published an opinion essay penned by Facebook co-founder Chris Hughes, who calls for the breakup of the social media giant. Hughes, who left Facebook over a decade ago, levels a range of criticisms at the company and Mark Zuckerberg – chief amongst them the overwhelming power that Zuckerberg wields, but also his cavalier attitude towards privacy in the quest for “domination” and Facebook’s stifling of innovation and competition.

Setting aside the sensationalist slant and self-serving nature of the essay, it highlights the dangers and difficulty of blanket calls for regulation.

Firstly, it needs to be said that Hughes’ concerns are not without justification, and similar arguments can and have been levelled against the other usual suspects – Google, Amazon and even Apple. Yet an Elizabeth Warren-esque approach to regulation (“break ‘em up!”) is unlikely to be an appropriate remedy to the perceived market power of these companies.

Yes, these companies are big, and it is difficult for anyone to play down their market power with a straight face. But absolute size is not a trigger for regulation. And what is “market power” in the context of free consumer services? US anti-trust theory adheres closely to price abuse and is yet to evolve to address cheaper or free services. European anti-trust focuses more on anti-competitive behaviour which is easier to make a case for, but that has not prevented the EU from implementing well-intentioned regulations with unintended consequences (see our discussion of the GDPR here).

Indeed, it seems that the concerns of politicians, consumers, regulators and other stakeholders are nebulous (and change with the latest scandal), which is usually an impediment to writing effective regulation. As Chris Hughes’ essay demonstrates, the debate around Facebook alone touches on privacy, free speech, harmful/hateful content, anti-competitive behaviour, data interoperability and M&A – several of which are mutually incompatible regulatory objectives.

What exactly does “breaking up” Facebook by spinning off Instagram and WhatsApp achieve? Two or three people now have unchecked control over the social fabric of 2.4 billion people instead of one, but it does nothing to address privacy concerns or the spread of harmful content across the platforms. Zuckerberg’s recent privacy manifesto and Facebook’s pivot towards encrypted messaging addresses users’ privacy concerns but inhibits the company’s ability to moderate harmful content across its messaging platforms. The FCC made a gigantic blunder by greenlighting Facebook’s acquisition of Instagram, but separating the two now is not going to fix the (lack of) competitive landscape – the difficulty of building a social network is not in attracting users, but in effectively monetising those users so as to create a sustainable business (see Snap Inc.’s travails as an example). Separating Instagram will cripple its ability to monetise and thus its ability to compete with Facebook core. WhatsApp has substantially no monetisation to speak of.

Similar regulatory stumbling blocks arise for the other large internet and consumer companies as well. Some may be easier to overcome, but others have been erected long ago on the foundation of a naïve belief that the internet would only bring out the best in humanity and suppress its worst instincts. Momentum is clearly gathering for “something” to be done, but no one really knows what or how it should be done. Attention-grabbing articles like Hughes’ essay serve to fan the flames but offer little in the way of elegant solutions.

The Montgomery Global Funds own shares in Facebook, Alphabet, and Apple. This article was prepared 15 May with the information we have today, and our view may change. It does not constitute formal advice or professional investment advice. If you wish to trade these companies you should seek financial advice.


Daniel Wu is a Research Analyst at MGIM. Prior to joining MGIM in June 2016, Daniel was an analyst in the investment banking divisions of UBS and Goldman Sachs, where he covered the Infrastructure, Utilities, Technology and Media sectors.

This post was contributed by a representative of Montgomery Investment Management Pty Limited (AFSL No. 354564). The principal purpose of this post is to provide factual information and not provide financial product advice. Additionally, the information provided is not intended to provide any recommendation or opinion about any financial product. Any commentary and statements of opinion however may contain general advice only that is prepared without taking into account your personal objectives, financial circumstances or needs. Because of this, before acting on any of the information provided, you should always consider its appropriateness in light of your personal objectives, financial circumstances and needs and should consider seeking independent advice from a financial advisor if necessary before making any decisions. This post specifically excludes personal advice.

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  1. Yes it is. Has no one heard about the amount of people who have been smeared in the media for their political views and (supposed) political leanings, being called “dangerous” and being banned or demonetised on their platforms ?

    Just go on YouTube and look at some of the disgusting treatment meted out by the BBC to UKIP and MEP candidates, because they are not of the ‘right’ political persuasion.

    Some of these people are merely speaking an inconvenient truth on whatever issue, but one that no one wants to hear, and have been accused of ‘hate speech’ (which, like a Chinese Government State Secret is “whatever they decide it to be”).

    For example, saying the phrase “learn to code”, “kek”, “Pepe the frog” or showing the “OK” gesture are considered “hate speech”. It’s ludicrous, especially when you look at who they have called out as being a ‘white supremacist’ (including people of colour). This really is a clown world we are in.

    Some are award winning medical scientists in their field who have said things that actually, would HELP people by making it easier to get financial assistance, but because they have been deliberately misinterpreted, they have been banned. There is no “free speech”, unless you agree with them. In fact, you cannot even talk about certain people or websites on their pages unless you denounce them. That’s not discussion.

    It is digital book burning. It’s a return to when the earth was the centre of the universe and anyone (like Galileo) who proposed differently, or that the world wasn’t flat, was branded (literally) a heretic and excommunicated.

  2. Andrew ronan

    It’s obvious, they have way to much power, if people were worried about Russian meddling they should be doing backflips over the sheer power and influence these predominantly left wing organisations have.
    Of note Trump and many others have expressed concern over their left wing bias and rightly so, If he gets elected again, look out big tech.

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