A pair of editorials in The New York Times and Business Insider exclaimed recently that the power in the tech industry is concentrated among too few companies, with both publications calling for a new round of antitrust regulation akin to the Department of Justice action against Microsoft in the 1990s.
This argument is stunningly, spectacularly wrong.
Yes, the five big tech companies—Alphabet (Google), Amazon, Apple, Facebook, and Microsoft—are more powerful collectively than the tech industry has ever been. They're the five largest companies in the U.S., as measured by market cap, and have been driving most of the stock market's gains since January.
It's also easy to argue, as Matt Stoller does in the Business Insider piece, that innovation in the tech industry is in a lull. Silly venture capital-funded companies like Juicero, which sells a $400 juicer, are a highly visible example. (A recent Bloomberg investigation showed that the juice packets could actually be squeezed by hand to the nearly same effect as the $400 juicer, which apparently irritated some of the start-up's early investors.)
Yet what both of these facts actually demonstrate is that the tech industry is one of the nation's most vibrant, subject to constant competition and disruption—precisely the opposite of the market characteristics antitrust law was meant to stop.
The Big Five are in constant competition. The fact that there are five powerful companies at the top of this industry, rather than one (as was arguably the case with Microsoft in the 1990s) should be a clear clue that the tech industry is exceptionally vibrant.
In fact, it's not clear that any of these companies has an actual monopoly, and it depends on how you define the market.
Does Google have a monopoly in the search market? Probably. But it makes its money from online advertising, where it faces clear competition from Facebook. Amazon arguably has a monopoly only if you define e-commerce as a separate market from retail. Apple doesn't seem to have a monopoly anywhere.
But more to the point, these five companies are in constant battle, both at the margins and in their core areas of business. Consider the following:
- Apple invented the modern smartphone business with the iPhone in 2007, but Google quickly rolled out a competing platform, Android, and licensed it broadly to the point where it now has more than 80 percent of the global market;
- Amazon is constantly improving product search in an effort to undercut one of Google's core sources of revenue—search ads that appear when the user seeks information on a particular product;
- Facebook is competing against Google for every dollar available in online advertising, particularly in video;
- Apple has its own suite of mobile productivity apps that compete with Microsoft's Office apps on its devices, while Google has a strong online version of these kinds of apps;
- Amazon, Microsoft, and Google are in brutal competition for the cloud computing market, which itself is disrupting traditional software vendors like Oracle and SAP, with hundreds of billions of dollars of corporate IT budgets at stake.
And on and on.
This isn't a case of five companies sitting comfortably on their piles of gold and colluding to stay out of each other's core areas. It's all-out war, year after year.
The evidence of fast disruption in the industry is clear. Contrary to Stoller's argument, Google did not beat Microsoft because of antitrust litigation; the areas where Microsoft was restricted from competing related to web browsers and forcing PC makers to accept and reject certain software as a condition for getting Windows.
Google became a threat to Microsoft because it solved an entirely different problem that Microsoft hadn't even been focused on—organizing the burgeoning mass of information on the Internet in a way that made it easy for people to find what they were looking for. By the time Microsoft woke up and tried to beat Google with its own search engine, MSN Search (later Bing) in 2005, it was already too late.