STRS: Roosevelt Institute Report Misses The Mark On Tech’s Importance To Economic Growth
In case you missed it, the Roosevelt Institute released a report examining why some Americans feel “powerless,” which the report ascribes to concentration, particularly within the tech sector.
Certainly, economic helplessness and empowerment are issues that deserve urgent solutions; unfortunately, the Roosevelt Institute’s framing – that anti-competitive behavior by leading tech services has led to fewer jobs with lower wages and higher prices, and less innovation – doesn’t reflect reality. As Information Technology and Innovation Foundation President Robert Akinson points out, and has pointed out alongside New America co-founder Michael Lind before, “It is large corporations that do the most good for both consumers and workers, not the small businesses we often romanticize.”
Leading Tech Services Provide Significant Economic Benefits. Despite what the Roosevelt Institute claims, larger companies actually “provide higher-wage jobs, better workplace benefits, lower prices, stronger environmental protection, and promote diversity, safety, and stability.” According to the Department of Commerce’s Bureau of Economic Analysis, employment in the digital economy grew at an average annual rate of 3.7 percent yearly – compare that to the overall economy’s 1.7 percent rate of growth.
Leading Tech Services Are Not Gatekeepers To Data. The Roosevelt Institute takes issue with companies’ abilities to collect data. But, as we’ve said previously, this argument has been long debunked. Data alone is virtually meaningless; companies build scale by identifying insights into consumer needs and creating efficient, accurate systems of interpretation. What’s more, data is non-rivalrous: The typical American uses multiple platforms, providing data to each service. Data is not exclusive to any recipient, and consumers readily offer data to competing platforms.
Leading Tech Services Innovate And Can Be Toppled By Innovative Competitors. We’ve noted in the past that leading tech services face competition from established companies like News Corp, Verizon, and Microsoft as well as startups like Snap. We’ve seen evidence of this recently, with an eMarketer report predicting that leading tech services’ shares of digital advertising space will decline this year for the first time, while overall digital ad spending will grow. The growth of these competitors is also notable, given that data indicate tech companies spend more on R&D than any other companies in the U.S.
More information is below.
LEADING TECH SERVICES ARE ECONOMICALLY BENEFICIAL
Robert Atkinson, Founder Of The Information Technology And Innovation Foundation, Says Larger Companies Provide Higher Wages, Better Benefits, More Benefits, And Lower Prices, Among Other Positives. “Bigger companies provide higher-wage jobs, better workplace benefits, lower prices, stronger environmental protection, and greater workplace diversity, safety, and stability, while engaging in less tax evasion. Regardless, neo-Brandeisians want to go back to an economy in which most Americans are employed in small, locally owned firms or worker co-ops, and they want to use aggressive antitrust enforcement to get there.” (Robert Atkinson, “The Neo-Brandeisian Attack On Big Business,” National Review, 10/2/17)
Today’s Leading Tech Companies Have Created More Jobs Than Leading Companies Of The Past. “Tech giants such as Google, Apple, Facebook and Microsoft are adding jobs as fast or faster than the great job-producing companies of the past, like GM, AT&T, Walmart, IBM, GE, US Steel, and Bethlehem Steel. Consider this: Twenty years after its 1892 founding, General Electric had 41,000 employees. Google beat that mark in 2012, only 8 years after its 2004 initial public offering.” (Michael Mandel, “A Historical Perspective On Tech Job Growth,” Progressive Policy Institute, 1/10/17)
According To The U.S. Department Of Commerce, The Digital Economy Supported 5.9 Million Jobs In 2016. “That same year, the digital economy supported 5.9 million jobs, which accounted for 3.9 percent of total U.S. employment (150.3 million), similar to industries like finance and insurance, wholesale trade, and transportation and warehousing (chart 2). Employees working in the digital economy earned $114,275 in average annual compensation compared to $66,498 average annual compensation per worker for the total U.S. economy.” (Kevin Barefoot, Dave Curtis, William Jolliff, Jessica R. Nicholson, And Robert Omohundro, “Defining And Measuring The Digital Economy,” Bureau Of Economic Analysis, 3/15/18)
Department Of Commerce: Employment In The Digital Economy Grew At A Rate Of 3.7 Percent Yearly, Higher Than The Overall Economy’s 1.7 Percent. “In 2016, the digital economy employed 5.9 million workers, representing 3.9 percent of total employment. Of all digital economy workers, 88.2 percent worked in service‐providing industries, most notably computer systems design and related services (1,870,000 employees), other retail (984,000 employees, working primarily in e‐commerce), and broadcasting and telecommunications (869,000 employees). On the goods‐producing side, the computer and electronic products manufacturing industry supported the most digital economy jobs (572,000). From 2011 to 2016, employment in the digital economy grew at an average annual rate of 3.7 percent compared to an average annual rate of 1.7 percent for the overall economy (chart 10).” (Kevin Barefoot, Dave Curtis, William Jolliff, Jessica R. Nicholson, And Robert Omohundro, “Defining And Measuring The Digital Economy,” Bureau Of Economic Analysis, 3/15/18)
LEADING TECH SERVICES ARE NOT GATEKEEPERS TO DATA
Economists Anja Lambrecht And Catherine Tucker Note, “Big Data Is Not Inimitable Or Rare,” With Insight Into Consumer Needs More Critical To Startup Success. “Our analysis suggests that big data is not inimitable or rare, that substitutes exist, and that by itself big data is unlikely to be valuable. There are many alternative sources of data available to firms, reflecting the extent to which customers leave multiple digital footprints on the internet. In order to extract value from big data, firms need to have the right managerial toolkit. The history of the digital economy offers many examples, like Airbnb, Uber and Tinder, where a simple insight into customer needs allowed entry into markets where incumbents already had access to big data.Therefore, to build sustainable competitive advantage in the new data-rich environment, rather than simply amassing big data, firms need to focus on developing both the tools and organizational competence to allow them to use big data to provide value to consumers in previously impossible ways.” (Anja Lambrecht And Catherine Tucker, “Can Big Data Protect A Firm From Competition?” MIT Initiative On The Digital Economy, 12/18/15)
Andres Lerner, Executive VP At Compass Lexecon: Incumbent Services Do Not Have Exclusivity Over Data, Especially Given Multihoming. “As an initial matter, no single firm controls all, most, or even a significant amount of user data. Many online providers have access to significant amounts of user data from various sources, as the FTC has recognized. And, in contrast to economic theories about foreclosure of rivals through the control of an essential input, incumbent online providers do not have explicit or de facto exclusivity over user data. There are no exclusive contracts with users, and no pricing structure or features that lock-in users to a particular platform. As a result, users can, and often do, utilize multiple online services, even for the same type of task (referred to as user “multi-homing”), which gives multiple providers the ability to collect data on the same user. User data also is “non-rivalrous,” meaning that collection and use by one provider does not detract from collection and use by others. User multi-homing, and the non-rivalrous nature of user data, further diminish the possibility of any de facto exclusivity over user data.” (Andres Lerner, “The Role Of ‘Big Data’ In Online Platform Competition,” Compass Lexecon, 8/26/14)
LEADING TECH SERVICES DO NOT INHIBIT INNOVATION
Pinterest Advertising Revenue Expected To Eclipse $500 Million In 2017, A 5X Increase From 2015. “Pinterest, which makes all of its money from advertising, is targeting more than $500 million in revenue in 2017, according to multiple sources familiar with the company’s plans. Some believe the company could generate as much as $600 million this year. Even on the low end of that range, that would be a jump of at least 67 percent over the $300 million in revenue Pinterest brought in last year, when it had internal goals to bring in $1 million per day. The company generated $100 million in revenue in 2015.” (Kurt Wagner, “Pinterest Expects To Make More Than $500 Million In Revenue This Year, Recode, 3/21/17)
eMarketer Research Predicts Leading Tech Services’ Share Of Digital Ads Will Fall As Smaller Rivals Grow Quickly, “Seeking A Larger Share Of The Pie.” “In its latest forecast, research company eMarketer predicts the combined U.S. digital ad market share of Alphabet Inc.’s Google and Facebook will fall for the first time this year, shrinking to 56.8% from 58.5% last year. At the same time, overall digital ad spending in the country is likely to grow nearly 19% to $107 billion in 2018. To be sure, Google and Facebook are still increasing their total ad revenue significantly, and no other competitor even cracks 5% market share. But those smaller rivals are growing more quickly than expected and are seeking a larger share of the pie.” (Alexandra Bruell, “Rivals Chip Away At Google’s And Facebook’s U.S. Digital Ad Dominance, Data Show,” The Wall Street Journal, 3/19/18)
eMarketer: “Smaller Players” Are Eating Into Leading Tech Services’ Share Of Digital Advertising. “eMarketer estimates [Google and Facebook] will capture a combined 56.8% of US digital ad investment in 2018, down from 58.5% last year. These figures have been adjusted downward, as smaller players such as Amazon and Snapchat are experiencing faster-than-expected growth. Importantly, Google and Facebook’s share of new digital ad dollars is declining as well. This year, they will garner nearly 48% of new expenditures. By comparison, that figure was nearly 73% in 2016.” (eMarketer Editors, “Data Suggests Surprising Shift: Duopoly Not All-Powerful,” eMarketer, 3/19/18)
FactSet Data Shows Tech Companies Spend More On R&D Than Any Other Companies In The U.S. “Led by Amazon, Alphabet, Intel, Microsoft and Apple, tech companies spent more on research and development than any other companies in the S&P 500 that reported such data, according to FactSet data from the most recent fiscal year.” (Rani Molla, “Tech Companies Spend More On R&D Than Any Other Companies In The U.S.,” Recode, 9/1/17)