2 August 2018

Yes, says Vince Cable The online landscape is dominated by a handful of tech titans, with nine in 10 internet searches made through Google, 99 per cent of smartphones using Apple’s iOS and Google’s Android operating systems, and Facebook remaining the dominant social media platform. It is time to call the big tech companies what they are: oligopolies. They use their might to maintain market position—just look at the travel site Expedia, which owns Travelocity, Hotels.com and Trivago. The tech giants protect their interests through buying potential challengers and spending millions lobbying governments. Their increasingly dominant position often leaves entrepreneurs feeling they have little to no choice but to sell or shut up shop. The gobbling up of small rivals stifles innovation and limits consumer choice. And because tech titans operate across borders and as intellectual property is their main source of income, they are extremely difficult to track. That means authorities struggle to keep up and gather their proper tax take. Supranational bodies, notably the EU, are in the best place to regulate and, where necessary, break-up these oligopolies. There are some obvious candidates. Amazon could be three separate businesses—one offering cloud computing, another acting as a general retailer and a third that acts as a third-party marketplace. Facebook could be forced to divest itself of Instagram and WhatsApp as a condition for operating in the EU, immediately creating two new social media networks. Google could be asked to divest YouTube. The sheer openness of the internet offers almost endless creative opportunities. But it requires regulatory help in order to thrive. No, says John Kay In investment circles, they call them the FANGs—Facebook, Amazon, Netflix, Google. The oldest of them, Amazon, is still less than 25 years old. Yet their stock market valuations make them among the largest companies in the world. Each of them has prospered by disrupting established industries with new goods and services and innovative business methods which have attracted millions of customers—for Facebook and Google, billions. Facebook has transformed the ways people communicate. Amazon pioneered online retailing and built internet skills which have enabled it to establish Amazon Web Services as a leader in cloud computing. As for Netflix, it has allowed people to watch movies at home whenever they want. And Google has put a wealth of knowledge at everyone’s fingertips. Each has made substantial profits while making services available more cheaply than before. That is how market economies are meant to work: by encouraging and rewarding innovation. New businesses overtake complacent incumbents. IBM dominated the computing industry for two decades until it was forced to cede leadership to Microsoft. And then Microsoft stumbled—recall its then-chief executive Steve Ballmer laughing at the idea that anyone would pay $500 for a mobile phone. Then Apple became not only number one in mobile technology but the most valuable company in the world. Anyone with a computer can set up an online shop—ironically, Amazon makes it particularly easy. The entertainment business hardly lacks competition for Netflix. There are many search engines, but people seem to come back to Google because it is the best. And while Facebook seems invincible today, it is only a decade since people said much the same about MySpace. And in time the FANGs will suffer the fate of MySpace, as did United Steel, General Motors and IBM in past decades. There is lots of work for antitrust to do where competition is failing, starting perhaps with energy and finance. But not here. Yes The theory is, of course, that market economies are supposed to encourage and reward innovation. New businesses are supposed to overtake complacent incumbents. But complacency among these tech giants is not the issue. Far from it—the big tech firms are highly active in cementing their positions, not always through innovation, but often through defensive acquisition. Facebook is constantly looking for prey. In 2011 it snapped up the mobile app-platform Snaptu; a year later, the facial recognition firm Face.com; in 2013 Onavo, which is now Facebook Israel; and then it splashed out $60m for Pebbles three years ago. Israel is a leader in hi-tech, so we can be sure Facebook is running the slide rule over a number of Israeli firms that have enormous potential—but will never be rivals due to Facebook’s chequebook. Also, we cannot be too complacent ourselves, because history teaches us that, in practice, small concentrations of power quickly become continued monopolies. In just four decades, Standard Oil went from start-up to being declared an illegal monopoly, reviled for undercutting competitors. That might have been over a century ago and in a different landscape, but we can see how the tech titans are similarly riding roughshod over their rivals. Unfortunately, we don’t have the same trust-breaking spirit in the UK today. Too often, our competition watchdogs have focused on pricing, rather than overwhelming market share. Just look at the audit market, which is so dominated by the so-called Big Four of KPMG, Deloitte, PwC and EY. Rather than break them up, the Competition Commission came up with a toothless imposition of mandatory tendering that has done nothing to end their dominance. The tech scene cannot be allowed to go the same way. No We agree on the fundamental issue—policy should protect the process of competition, which is what gives us efficient businesses and new products. But most of the complaints about FANGs and other new companies come from people who dislike the process of competition, or at least its results. They want to preserve existing business models. They want to sustain high street shops, even as fewer and fewer people want to go to them. They regret the decline of newspapers, although we now get our news more rapidly, and from more diverse sources. They cannot accept that the internet diminishes the need for public libraries, or renders much of the traditional publishing industry redundant. They long for the reliable routine of the schedules of the traditional broadcaster. We also agree that we need a competition