For most of us, the COVID-19 crisis has been truly awful. But for Big Tech, it’s actually been ... [+]
By Professor Michael G. Jacobides, London Business School
Note: The piece was updated on July 30 to reflect the US Congressional Hearings of the Big Four CEOs on July 29.
For most of us, the Covid-19 crisis has been truly abysmal. But for Big Tech, it’s actually been pretty good, if markets are anything to go by. Yet after a period when governments turned to tech firms for help, it seems the mood is shifting. The deposition of the four CEOs in the US Congress revealed a lot of concerns about their power and, while pent-up frustration has yet to change the regulatory landscape, change is afoot.
While data, IT, geolocation, and AI will be key to any economic recovery, serious questions arise that go beyond the frustration with the “big four” in the US (GAFA). New digital services, many prompted by Covid-19, are becoming increasingly important. But who should offer them? How should we set the rules of the game, in terms of who can control the data and access the insights?
Some say “leave it to the market” — but, if we do, where will the market lead us, and how might its actions affect society and the fabric of smaller firms who cannot become gatekeepers and ecosystem orchestrators?
Consider, given Covid-19, changes in healthcare, a field ripe for transformation. In China, insurer PingAn leveraged its superior customer knowledge to expand into healthcare, becoming the trusted provider for customers lost in a maze of options. Tencent and AliBaba have created similar webs covering a vast array of individual needs.
Given the sensitivity over privacy, Big Tech in the West has been more circumspect, despite well-funded healthcare subsidiaries. Yet Amazon can be a true force in healthcare; like Google’s Verily, its goal is to revolutionize healthcare, on both a B2B and a B2C basis. Facebook is already active in preventive healthcare, while firms such as Phillips are advocating a new template for sharing healthcare information.
Technology can bring us important new solutions — including ways to tackle Covid-19. The only question is whether we can find the right way to connect players and leverage data. What role should healthcare providers and insurers play? And what about telcos, handset makers (which include Samsung and Huawei), or the providers of mobile OSs? How do we feel about the service-ization of data, and the generation of advertising revenues?
Healthcare illustrates the conundrum we all face, between convenience and competition (let alone privacy). We live in a world increasingly dominated by technology platforms and their associated business ecosystems. By making us even more dependent on virtual connections, Covid-19 is hastening this shift; Facebook just ventured into e-commerce to challenge Amazon, and Apple’s new growth engine is services, from TV and News to Apple Card. As Big Tech would argue, this just delivers to consumers what they want. Yet where does customer convenience end, and competitive dominance begin? Beyond privacy, how does data relate to competition?
To tackle dominance, we’ll need to revisit the rules of competition. In banking, a sector plagued by inefficient firms, the EU has forced the adoption of “open banking standards” called PSD2 to enhance competition. Should these expand onto other sectors, including social media? If so, how far should we go? To converge to a solution that works for society we need to take a step back, understand the business models of the platforms that aspire to run an ever increasing part of our lives, and then revisit regulation from the bottom up. The economics of digital businesses, with easy scalability, lock-ins and “winner-take-most” dynamics, create problems of dominance unlike the ones we’ve been used to, as recent government-sponsored reports from the UK and the EU and academic work in the US confirmed.
To “follow the money”, consider Big Tech M&A. Microsoft paid $8.5bn for Skype and $26bn for LinkedIn, while Facebook spent $22bn on WhatsApp. These massive investments helped acquirers cement their hold over their respective ecosystems and snuff out the threat from a potentially competing platform - a fact that came to haunt Google and Apple in the recent Congressional hearings of their CEOs.
The problem is that today’s antitrust playbook is ill prepared to deal with the new rules of digital platforms and ecosystems. For instance, out of Alphabet’s tally of 150+ acquisitions over the last decade, EU and US competition authorities opened cases for just six - and ultimately took action on none at all. Is Google really so pro-competition? Or are we working with outdated ideas of what competition and power really are?
This is by no means an idle question. Right now, Google, Apple, and Facebook are sitting on combined cash reserves of $570bn, or three times the GDP of my native Greece. They can buy anything they want, given the looming contraction. Should we really allow this? Or should we try to foster more meaningful and productive competition between ecosystems?
Recently, London Business School, University College London, and the World Economic Forum co-organized a workshop on the regulation of platforms and ecosystems, involving several heads of European competition authorities and Big Tech leaders. The event highlighted a systemic unease and growing calls for a rethink of intra-platform competition and how all-powerful orchestrators manage members of their ecosystems. The current stock-market valuations of Big Tech suggest their power will persist, and raise questions about our entire regulatory apparatus. Whether or not we intervene, our choices today may set the stage for the competitive landscape for decades to come - and while the unease is clear, the framing and solutions are still being debated.
We have to take tradeoffs seriously and think of them afresh, moving beyond existing tools of antitrust which offer little solace. If we do turn our backs on Big Tech, how can we justify neglecting its prodigious, potentially life-saving power, or justify the frictional costs? But if we embrace it, how can we ensure a level playing field? The point of regulation is not to protect outdated incumbents, but to facilitate dynamism while mitigating the real risk of excessively powerful firms, an agenda we’re woefully unprepared to address. To rise to the challenge, regulators and economists have to rethink their toolkit, and those of us with an interest in strategy, innovation, and digital business models have to focus on societal issues.
While the spotlight this week has been on the US, given the Big Tech CEO depositions to Congress, this was more about shaping public opinion and venting frustrations than immediate action. Looking at the legislative and regulatory agenda, the EU is poised to play a key role here—partly as a result of historical accident, and partly due to its political economy. Unencumbered by existing Big Tech players in Europe, and with heightened sensitivities in terms of data protection, the EU is forging ahead with new regulations on the platform economy. Ongoing consultations about the forthcoming Data Act and the Data Services Act, the implementation of the EU’s “business to platform” guidelines, the new regulatory tool for platforms, and its current investigation into the role of dominant platform orchestrators, could all make a lasting mark. Academia should take its cue from the EU, and explore the same topics. (Sadly, the UK, which has adopted a progressive stance, will struggle to make a global impression, as it drifts off into a Brexit backwater of its own making.)
Every technological choice we make has profound ramifications for strategy, competition, social welfare, and the individual. If we want solutions that will meet all those needs, both during the crisis and long afterwards, we need a “New Platform Deal” that truly works for everyone.
The writer is the Sir Donald Gordon Professor of Entrepreneurship and Innovation and Professor of Strategy at London Business School and the co-author of the World Economic Forum’s White Paper on Digital Platforms & Ecosystems.
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