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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:
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.
There are plenty of other examples. As recently as 2007, Microsoft had the only operating system that mattered—Windows.
A decade later, Windows is in third place behind Google's Android and Apple's iOS, which conquered mobile computing devices and caught Microsoft flat-footed. Facebook swept into an online advertising market dominated by Google in 2012, and ended up capturing a huge portion of mobile online ads, catching Google flat-footed. And on and on.
A vibrant start-up market is a sign of competition. Yes, Juicero was a silly idea. (Although as former Microsoft exec and current venture capitalist Steven Sinofsky pointed out to me on Twitter, the company that owns the similar Keurig drink-pod system sold for $14 billion in 2015.) But the fact that these silly ideas are getting funded is a sign of vibrancy, not a sign that innovation is being squashed by monopolists.
Take for example Snap, which is losing hundreds of millions of dollars a year, but was funded by venture capitalists to the tune of $2.65 billion before going public earlier this year at a valuation over $20 billion. It is now causing enough panic at Facebook that the company is imitating Snapchat's core features as fast as its developers can code them.
Or look at Jet.com, a venture-funded competitor to Amazon that Wal-Mart snapped up for over $3 billion last year.
Or on the enterprise side, Okta set out to solve a problem in an area that Microsoft had dominated for most of the last decade—how to sign employees in to the apps they need to use, without making them enter a username and password every time.
Microsoft's solution was designed back when most companies used apps from a few vendors, running on their own in-house computers; Okta saw that companies were moving toward using cloud-based apps from a wide variety of vendors and exploited that niche. It went public earlier this month at a market cap of over $2 billion.
Price competition benefiting customers. U.S. antitrust law focuses on harm to consumers—it's not enough for a company to be dominant, it must be using that dominance to raise prices or lower selection for consumers. (It's different in Europe, where the dominance itself can be cause for restriction.)
The evidence is quite to the contrary. Amazon is in brutal competition with physical retailers to offer consumers the lowest prices on almost anything they could want to buy. Google and Facebook offer their services for free to consumers, and are fiercely competitive when it comes to their paying customers—advertisers.
Meanwhile, Amazon, Microsoft, and Google are locked in a price war for cloud computing. Venture capital-subsidized start-ups like Uber give consumers more choices at lower prices than they've ever had.
No doubt, these five companies are powerful. There may indeed be cases where regulators need to step in and restrict these companies from harming consumers.
For instance, you could argue that Google and Facebook have too much information about people's web-surfing and buying habits, and that they should be subject to strict privacy restrictions on how they use that information. You could argue that Amazon's cutthroat negotiations with suppliers will have a long-term negative effect on price and selection by forcing smaller retailers and e-tailers out of business, and look for ways to regulate that. Regulators should certainly be on the lookout for any evidence of collusion between the big powers in tech—as happened with the class action suit over employee salaries at Apple, Google, and several other big companies that was settled in 2015.
But antitrust law is a blunt instrument meant to be used in cases of obvious market dominance that's clearly hurting consumers. That's not at all what the tech industry looks like today.