The Only Thing Missing From The Big Tech Breakup Debate: A Debate

Bashing Big Tech has become something of a sport.

Regulators are circling the wagons. Policymakers are preparing to haul Big Tech execs to Capitol Hill for one big, public airing of their grievances. Presidential candidates are using the breakup of Big Tech as a policy platform. Once-upon-a-time cheerleaders of Big Tech are fanning the flames.

A bashing that started in Europe in 2015 when the European Commission filed suit against Google for anticompetitive practices has accelerated sharply worldwide. And unfortunately for all, in the aftermath of Facebook’s failure to protect consumer data and the integrity of the content it publishes, everyone is being blamed.

The result is today’s narrative that all Big Tech is bad.

B.A.D. Bad.

The remedy for that so-called badness is to break all of it up into tiny bits – the specifics of which no one has yet been able to articulate, beyond the buzzy “break up Big Tech” sound bites.

What’s missing, at least so far, from the bashing and breakup talks is an honest and balanced debate.

So, let’s start that today – using something I’ve always thought essential when discussing things like destroying companies that drive substantial competition and consumer value.

A few facts.

The Extremes

The latest chapter in the Big Tech-bashing playbook is that because Big Tech is big, innovation in their respective spaces has gotten smaller.

Ignoring, of course, that there are direct competitors to all of those being lumped together as Big Tech: Bing for Google, Walmart for Amazon, Android for Apple, Snap and global messaging apps like WeChat for Facebook.

The evidence, those who share this view claim, is that VCs are not and will not invest in Big Tech challengers because they are so big, so no one else can ever compete. In other words, why bother?

That hurts consumers, they say, because the concentration of power in a few big players means the little guys don’t get the capital they need to scale and so they close up and die, if they ever get started at all. Consumers, and those innovators, miss out.

Meanwhile, consumers are stuck with a small number of powerful firms. There goes choice, and in comes high prices.

Then again, maybe not.

Economists Esteban Rossi-Hansberg of Princeton University and Pierre-Daniel Sarte and Nicholas Trachter, both of the Federal Reserve Bank of Richmond published a working paper in 2018 that addressed this very issue, among others, for a company bashed as being bad for consumers and businesses long before Big Tech ever was.

Walmart.

The song was the same, but sung to a slightly different tune: the world of physical retail. The narrative was that when a Walmart came to town, small businesses went out of business. Furthermore, on a national scale, Walmart’s largesse forced a consolidation of competing stores that further eliminated the options for consumers to get good prices and a diversity of supply.

Using publicly available data from 1990 through 2014, these economists found just the opposite.

Buying products in physical stores, their research concludes, is done locally. They acknowledge, using their data, that the national market consolidation, particularly in the area of mass-market retail, is an incontrovertible fact. But just because there are more big national firms, and higher concentration, doesn’t mean consumers who buy locally have less choice. In fact, competition among discount department stores increases.

Their research showed that the number of competing local establishments in the zip codes where Walmart operated their stores increased, even though some competing stores did exit. On balance, there was a net increase of firms competing locally – an increase that persisted for at least seven years after the new establishments opened.

Sure, some of the local competition may have come from other national or regional players instead of from mom-and-pops. But competition is competition.

Consumers won on two levels.

There was the national scale of a Walmart-created supply chain and distribution efficiencies that supported “everyday low prices” for the consumers who shopped there. At the same time, local markets flourished as competition increased. Entrepreneurs, including those looking to compete nationally, viewed Walmart as an opportunity to compete for customers in new and different ways.

More generally, these authors find that what’s true in discount department stores is true in most industries. Even though there are more big national players, and concentration nationally has increased, the opposite is true when looking at things locally.

To understand the paradox, think of it this way: Suppose every town has just one firm that offers a service. Locally, that firm is a monopoly and concentration is high. Nationally, there are a bazillion firms, so concentration looks low. Now, suppose there are four firms that provide that service and operate nationally. That increases concentration at the national level. But now there are four competitors locally instead of one, so concentration has gone down. (This is an extreme example.)

Rossi-Hansberg and his co-authors didn’t have data on online options. So if anything, their results are even stronger. In addition to more physical competitors, most people have access to a large number of online sources right at their fingertips.

And who’s responsible for that? Big Tech.

Now That We’re Global

In a digital world where smartphones now make every product more or less a local purchase for that consumer, Big Tech is helping companies large and small find new customers and build their businesses. They have been doing that increasingly over the last couple of decades.

Take Google.

Google says the number of “near me today/tonight” searches increased 900 percent in the period between 2015 and 2017, when there was also a 150 percent increase in “near me now” searches. “Near me” searches related to fashion and car dealers increased 600 percent and 200 percent, respectively. A majority were done via mobile devices, with 76 percent of those searches resulting in an in-store visit. Many of those visits were likely new customers.

Take Instagram.

Instagram today has one billion active monthly users – two-thirds of whom visit the platform every day. More than two million businesses have bought ads there, many of which are intended to drive users to their websites to buy products.

Many of those ads and those sites are new or young businesses. Shoppable tags now make it easy for users to tap and buy from that tag, via an influencer or in an ad, and from a variety of sellers. Instagram says 130 million people do that every month.

Then there’s Amazon.

Amazon reports there are five million marketplace sellers on the eCommerce platform globally that represented 53 percent of paid units sold in 2018, up from 26 percent in 2007.

During the 2018 holiday season, one billion items were sold by third-party sellers. In 2018, 75 percent of those active sellers had between zero and five employees – the very small businesses that would be impossible to find outside of a platform with scale and a built-in audience of eyeballs ready to search, shop and buy.

And Apple.

Apple’s App Store now has 1.8 million apps that consumers can search for, find and download. Additionally, $120 billion has been paid to developers since the App Store opened. Many small app developers became big app players on the Apple platform. Many of those apps help SMBs manage and grow their businesses.

All of these platforms – Apple, Instagram, Google and Amazon – compete with each other for eyeballs and sellers, while creating an environment for those who would otherwise have no shot at finding buyers outside of their own local markets to grow and thrive.

They also encourage many others to start businesses, since getting customers is easier than ever.

Follow the VC Money

VCs may not be putting money into building the next Big Tech behemoth, but they are investing in lots of adjacent businesses that compete with them in different ways.

Take the many vertical search platforms, now operating at scale themselves, that aggregate buyers and sellers – many of them small – to help them find each other.

1stdibs gives several thousand sellers, mostly small antique dealers, a way to reach eyeballs from around the world – and for those eyeballs to find unique items they’d otherwise never find easily. And it enables dealers to reach buyers who spend a lot: The average transaction value on 1stdibs is $3,000.

Chairish does, too, with a mix of sellers ranging from people selling high-quality vintage stuff to dealers who want to expand their storefronts to anyone with a mobile phone.

In doing that, both 1stdibs and Chairish have unlocked opportunities for interior designers, who can now source and curate from these online showrooms and boost their own businesses. According to 1stdibs, 40,000 interior designers have registered on their site.

Houzz, one of the first sites to offer shoppable tags, does the same thing for home renovations and remodeling. An aggregator of both ideas and the items to complete and furnish the project, Houzz also gives local professionals an opportunity to be found when homeowners are on the site contemplating a potential project.

There’s also plenty of money being poured into food aggregators like Delivery.com, Grubhub, Uber Eats and DoorDash, which gives restaurants a chance to be found beyond the more traditional channels like Yelp and Google.

Oodles of money have also been poured into subscription businesses, many of which package items from a variety of businesses to bring a unique experience to the consumer and offer distribution for small sellers.

Barkbox, the monthly subscription service that started as a small business, packages and mails goodies to delight precious fur babies. In those boxes are products from small businesses that make the best organic dog treats, or the most puppy-friendly squeaky toys. Shots Box does something similar for craft beer, offering samples of craft beers via a subscription service in an effort to create the largest online tasting room and drive distribution of the local distillers’ products.

VCs have made investments in innovators – once small businesses themselves – to help other small businesses be more successful. New tools and tech help digital businesses accept all forms of electronic payments, including the digital wallets that make it easier for consumers to buy from them online. They also enable the businesses to connect to marketplaces and contextual platforms, do business on a global scale, fight fraud, find outsourced help on gig platforms, and integrate front and back office operations into their accounting systems.

Big Tech has  given rise to an entirely new set of innovators who are reaching new audiences because Big Tech is — well — Big, and gives them access. Billions have been invested to help businesses form, grow and even leverage opportunities provided by Big Tech platforms to do business — in a safe and secure manner.

If anything, Big Tech has spawned innovation and a whole new set of competitive dynamics in the markets in which they operate and compete – and helped to grow and fund new players who compete in different ways.

Now the “But”

That’s perhaps the side of the debate that’s less publicly discussed, less the headline-making narrative, less the reality of how Big Tech has helped ignite new and different ways for business to compete and scale.

That doesn’t mean there aren’t things to worry about.

It’s possible, I believe, to roil against Facebook for its repeated failures to govern and to fix the systemic problems that exist in that platform. It’s possible to talk about remedies to correct those issues, which may, in the first instance, have little to do with regulation and more to do with having the Board take strong and decisive action to fix their corporate governance structure. (It’s amazing to me that the Board remains intact and that more heads haven’t rolled.)

It’s possible to raise a yellow flag when the ecosystems that Big Tech has ignited in this very dynamic digital world have the potential to create conflicts that could harm consumers and businesses. As Google becomes more of a marketplace itself and begins to compete with established marketplaces – like travel aggregators, food delivery aggregators and local services aggregators – we need to understand how they will keep competition fair.

It’s also possible to do both without collectively throwing all of Big Tech as we know it under the bus for policymakers and regulators to run roughshod over.

We’re only about two decades into the massive transformation of our economy, thanks to the innovations Big Tech has created – and the many more that innovators have created – to give consumers and businesses unprecedented opportunities to find each other and do business using their platforms.

But Big Tech firms, like pretty much all big firms, probably have done, and certainly will do, some bad stuff. For most consumers, however, they are anything but B.A.D.

Before jumping on the “Big Tech is bad” bandwagon and getting rid of things that consumers value, the politicians and regulators should ask consumers how they would rate Big Tech against other firms that provide them services – like, say, their local cable provider or the post office.

Or take another look at the recent poll of New Yorkers taken after local politics quashed Amazon’s HQ2 plans for Long Island City:  67 percent said it was the wrong move.