Washington lawmakers are preparing to break up big tech companies over perceived anticompetitive practices.
The New York Times reported lawmakers have filed documents with the House Judicial committee recommending the break up of big tech companies.
This means big tech shares are a BUY. As usual, lawmakers are dead wrong and shareholders stand to gain. Let me explain …
Companies to keep an eye on are Amazon.com, Apple Inc., Alphabet Inc.(Google), and Facebook Inc..
To no surprise, lawmakers assume companies like Amazon gained their market share by illegal means. Put another way, they believe competitors were intentionally shut out of the market. On the contrary, evidence suggests that innovation lead to market share gains NOT cheating. Correspondingly, companies that innovate tend to rise to the top and crush the competition.
On the other hand, lawmakers like to target Facebook and Alphabet(Google) because these companies command so much market share online. All things considered, their market share gain is not because of lack of competition, rather, it’s because they built superior products consumers actually enjoy. In addition, claiming lack of competition generates a great headline lawmakers can use to appeal to their constituents.
In 2004 Amazon created Amazon Web Services (AWS), it’s market leading cloud computing platform, to power its online distribution network. The market for cloud based storage did not yet exist. However, Amazon’s innovation lead to a partnership with Netflix which transformed the DVD mail order rental company into a global streaming media giant.
This example highlights how important innovation is to the advancement of our society and economy.
Of course, there are areas of concern when it comes to a level playing field.
- Amazon should not use internal data to undercut prices in its online store
- Google Search should be more careful about monetizing content collected by its search algorithms
- Apple should not be taking 30% of Spotify’s subscription fees when Apple Music is a direct competitor
Conclusion
However, even if lawmakers do break up big tech companies, like splitting AWS from Amazon, shareholders will still own the spun-off businesses. Investors know the sum of the parts is worth more than the whole. In the final analysis, shareholders will ultimately win and lawmakers will achieve nothing.
