What is the Future of Big Tech?

Earlier this year there were landmark competition hearings in America for the so-called big four of tech (Amazon, Apple, Facebook, and Google) all of which are increasingly being considered too large and too powerful.

These firms are considered safe havens that guarantee consistent returns for investors because, predictable, underregulated monopolies are very profitable. It is no secret that these companies have faced insufficient regulation due to the lack of competition law addressing them and an unwillingness on the part of politicians to focus on the problems they cause.

It seems now, however, that a big tech breakup is gaining bipartisan support and serious consideration in America. Economists throughout history have argued over the merits and flaws of permitting monopolies. However, recently the evidence against monopolies, including continually decreasing levels of seed funding where these companies operate (fundraising rounds of less than $1 million have decreased the last three years for start-ups), is starting to mount.

It should be mentioned, if only briefly, that there are huge benefits associated with these companies including low prices and an unprecedented levels of consumer convenience, but their unrivalled power means there are huge gains to be made from breaking the rules. Consequently, they are likely to find ways to justify doing so.

A rather shocking example is Amazon's use of third-party data to identify popular items and make their own version which they can then put at the top of any searches. They can referee the game and also play, leading to an unbalanced playing field where they always win.

Even though we have never seen a breakup of anything on this scale (which makes it hard to predict the results) many experts still think that the subsidiaries of each of these companies can still be successful and, over a long period, eclipse the original size of their parent companies.

A big tech breakup may be an immediate solution to competition, but it won't solve larger problems. With more and more tech firms emerging from Silicon Valley, it is only a matter of time before new giants emerge and need regulation. A breakup only acts as a temporary fix, markets are becoming increasingly saturated by large companies who can exploit economies of scale and the low levels of competition. Thus, it seems even in the event of a breakup it is wise to continue to bet on the long-term success of these companies and other tech giants.

Furthermore, the world is still adjusting to changes that have come about as a result of Covid-19. The substantial gains made by tech stocks this year suggest they will continue to thrive as the economy transitions due to the comparatively low levels of disruption they face.