STRS: Wu Ignores Reality Of Tech Competition
In a recent Wired piece, Tim Wu ignores economic and market realities in his call for regulation of leading tech services. Wu overlooks that the vibrancy of the tech industry is driven by the ongoing success of start-ups, relying on nostalgia instead of facts about the highly competitive modern technology market.
Some research dispelling Wu’s claims is below.
Wu argues leading tech companies serious competitive threats have been eliminated, but the success of start-ups has ensured that is not the case. Competition in the tech sector remains vibrant.
Deal value in the tech sector is at historically high levels. “The global venture-investing market has seen broadly uninterrupted growth in total deal value since the dot-com crisis. The market is at record levels, with about $150 billion of venture investment in 2017, compared to about $55 billion prior to the dot-com crisis. Growth has come from both technology and other sectors, with technology experiencing marginally higher growth in recent years.” (“Assessing The Impact Of Big Tech On Venture Investment,” Oliver Wyman, 7/11/18)
Acquisitions by leading tech services are a small percentage of total acquisitions in the tech sector. “The report also blows up the Economist’s notion that market leaders acquire all the most promising startups — a stark reminder of the adage that anecdote is not data. Relative to overall activity, tech acquisitions by prominent tech firms remain a small fraction of tech sector acquisition, having been at 1% or less since 2015. In fact, since 2011, acquisitions by leading tech services exceeded 2% of total tech M&A in only 2 years, and during those outlier years (Facebook’s 2014 purchase of WhatsApp and Google’s 2012 acquisition of Motorola), the leading firms’ share of tech M&A barely broke 10%.” (Matt Schruers, “Do Top Tech Firms Affect VC Funding?” Project DisCo, 7/11/18)
Makan Delrahim, AAG for Antitrust at the DOJ, finds acquisitions by leading tech companies help start-ups win. “The US justice department’s antitrust chief has indicated he is comfortable with large technology groups snapping up smaller rivals, arguing that ‘great efficiencies’ can come from such deals in Silicon Valley. Makan Delrahim, who was given the post by Donald Trump in 2017, told the Financial Times that consumers had benefited from deals such as Google’s $1.65bn acquisition of YouTube in 2006 and its $966m takeover of Waze, the driving app, in 2013. ‘You wonder would YouTube be as useful and as a competing force to music or in video had it not been enhanced and improved through the tech resources that Google had?’ he said, adding that Waze had benefited from Google’s search technology. ‘I think there’s great efficiencies that could occur from a lot of these. You can’t, you know, in retrospect try to second guess that.'” (Kadhim Shubber, “US Antitrust Chief Signals Comfort With Tech Deals,” Financial Times, 7/12/18)
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)
Assistant Attorney General for Antitrust Makan Delrahim believes Silicon Valley and the venture capital world are “alive and well,” with new companies often popping up. “It seems like Silicon Valley and the venture capital world, in this country, particularly, is alive and well. You’re having new companies pop up every now and then. But that’s what we do. Antitrust laws need to be there to make sure that they do not prevent the next competitor to come in. That was exactly what the Justice Department did in Microsoft 20 years ago, and a lot of people were worried about the power Microsoft had, and particularly when they were trying to suffocate the internet browser because it was challenging their monopoly power in the operating system.” (Makan Delrahim, “Department Of Justice’s Antitrust Chief On Regulating Big Tech,” CNBC, 11/13/18)
Wu argues tech’s narrative of disruption has been “rudely interrupted,” but in reality tech is even more vibrant today than it was in the past.
Economist David Evans argues the prevalence of multihoming, and switching, undermines the claim that data provides a substantial barrier to entry. “The prevalence of multihoming, and switching, between platforms is inconsistent with the claim that data provides a substantial barrier to entry. Time and again new platforms arise, with no data at inception, and acquire consumers and obtain data over time. That doesn’t mean that data isn’t valuable. It does strongly suggest that lack of data doesn’t pose significant obstacles to online platforms that develop valuable products that consumers like.” (David Evans, “Why The Dynamics Of Competition For Online Platforms Leads To Sleepless Nights, But Not Sleepy Monopolies,” SSRN, 7/23/17)
Spotify, with no users and no data, leapfrogged iTunes, which had data on more than 50 million users, points out economist David Evans. “A similar story was true for Spotify. When it entered the U.S. 2011, Apple had more than 50 million iTunes users and was selling downloaded music at a rate of one billion songs every four months. It had data on those people and what they downloaded. Spotify had no users, and no data, when it started. Yet it has been able to grow to become the leading source of digital music in the world. In all these cases the entrants provided a compelling product, got users, obtained data on those users, and grew.” (David Evans, “Why The Dynamics Of Competition For Online Platforms Leads To Sleepless Nights, But Not Sleepy Monopolies,” SSRN, 7/23/17)
Leading tech services increase consumers’ ability to switch services, while reducing entrepreneur start-up costs. “Tech critics have called for increased data portability to boost competition. Before the weekend, Google, Facebook, Microsoft, Twitter, and others announced a new standards initiative called the Data Transfer Project to do exactly that, noting, ‘Portability and interoperability are central to cloud innovation and competition.’ The initiative will allow consumers to transfer data directly between participating services without having to download and upload data. With an open-source code, the initiative further encourages the developer community to help extend the platform to support more data types, service providers, and hosting solutions.” (“ICYMI: Leading Teach Services Increase Consumers’ Ability To Switch Services, While Reducing Entrepreneur Start-Up Costs,” Springboard Initiative, 7/24/18)