Facebook co-founder Chris Hughes recently sent shockwaves through the tech community by writing a lengthy New York Times op-ed calling for breakup of the company. His exhortation further amplified a wave of US anti-big tech sentiment that now has Google and Amazon in the crosshairs of the Justice Department and Federal Trade Commission. Politicians across the aisle have found unlikely partnerships in anti-tech sentiment, and public backlash continues to grow. According to one poll, nearly 40 percent of Americans agree with increased antitrust action against Facebook. Even central bankers are talking about big tech’s ‘bigness,’ and a plethora of voices from Roger McNamee (author of Zucked and early Facebook advisor) to Shoshana Zuboff (author of The Age of Surveillance Capitalism) all decry the reach of technology companies in our lives.
Despite public perception having soured, and the increased likelihood of regulatory scrutiny, there has still never been a better time to operate a big tech firm. While concerns about consumer privacy, election interference, and misinformation are well-placed, these issues have, until now, overshadowed the most pernicious reality of these firms — their monopoly power.
Google completely dominates internet search with over 92 percent market share. Facebook has over 70 percent share of social networks, including Instagram. Both Google and Facebook have a duopoly in advertising with no credible competition or regulation. And over 50 percent of all online product searches now begin on Amazon. Make no mistake, the tech firms are the new trusts of our age with ambitions that dwarf even previous monopolies of old.
The technology giants not only want to monopolise their respective markets, but also to own the fundamental infrastructure on which those markets rely. They currently control, and are continuing to acquire ownership of, entire ecosystems of value — making everyone else dependent on them to conduct business. The railroad monopolists of the first Gilded Age employed a similar tactic, controlling the route to market for many goods.
This helps explain why Amazon and Google have been investing heavily in the logistics and mobility markets, across much of the value chain. Each firm is carving out a slightly different niche, but each with a similar aim of domination. Amazon has focused on transport and the logistics supply chain, whereas Google has leveraged its core competencies in maps, software, cameras, and cloud storage to solidify a leadership position in autonomous driving and personal mobility.
Looking at the investments or acquisitions made in recent years shows an intentional strategy to use existing network effects to vertically integrate across multiple stages of the value chain.
Google desires to be a major transportation giant which controls the end-to-end mobility ecosystem. Imagine a world where anywhere you go in your city, whatever mode of transport you take, you never leave the Google ecosystem or Google-supported ecosystem. This is a not so distant reality. Alphabet’s early-stage investment fund, GV has invested heavily in transportation including: ride-sharing (with investments in Uber and Lyft worth over $4 billion), bikes and scooters (Lime) and autonomous driving.
Autonomous mobility is a vast and growing market. “Developing and deploying self-driving vehicles at massive scale is the engineering challenge of our generation,” said Daniel Ammann the CEO of Cruise, an autonomous driving company who has raised billions from SoftBank and General Motors. Waymo, a Google spin-off is reportedly spending $1 billion/year on developing the technology and is the well-recognised leader in this space.
Other Alphabet investments include: Scotty Labs, a software for remotely managing self-driving cars (investment via Gradient, Alphabet’s private equity firm); Waze, a crowdsourced mapping application (the only credible threat to Google Maps before its acquisition in 2013), and Carmera – a mapping and data analytics startup. Google has also invested in Coord, which collects curbside data, and it has partnered with all three levels of the Canadian government (federal, provincial, and municipal) via Waterfront Toronto to create a world’s-first demo of a smart city, complete with autonomous mobility.
While these investments and acquisitions may seem dispersed, taken together it is no secret that Alphabet aims to be the global leader in autonomous ground mobility (both hardware and software), and though the industry is nascent now, this form of mobility may soon become a fundamental utility — just like internet search.
Transport and logistics undergird the economy and most global businesses rely on the industry for their ability to deliver products to customers worldwide. Dominating the logistics market not only means big financial gains, but power as the middleman between suppliers and consumers. In Amazon’s case, consumers can be citizens, businesses, or even government entities — last year, Amazon won a large local public agency procurement deal and is now courting the federal government. This means more public dollars are shifting to the behemoth company, and not only do they get a cut from the flow of goods, but they control the very process by which those goods get delivered.
The origin of a product’s lifecycle is manufacturing: Amazon manufactures many of its own goods (via Amazon Basics or by firms directly owned by Amazon), and these make up about 45 percent of their online product sales. Post manufacturing, goods are shipped internationally via plane or ocean freight. Amazon Air aims to eliminate reliance on FedEx and UPS, and it was recently announced that Amazon is investing $1.5 billion in a new hub in Cincinnati to beef up its capabilities for airfreight. For the first time in its history, Amazon added “transportation and logistics services” to its list of competitors in its 2018 annual filing.
Amazon’s fast delivery has made it a modern logistical miracle, despite the fact that delivery has been a continued cost burden for the company. Amazon reportedly spent $27 billion on delivery last year alone, and for years remained unprofitable with large shipping costs. To reduce this cost burden, Amazon plans to automate warehouses, eliminate drivers and 3rd party delivery companies, and vertically integrate through the entire logistics chain.
Once delivered to the correct national jurisdiction, goods are taken via long-haul trucks to Amazon’s large network of fulfillment centres. Ultimately, autonomous trucks will handle this stage of delivery. After sorting at a fulfilment centre, the goods face ‘last mile delivery’ from the warehouse to our doorstep. Amazon currently has a program for contract workers to manage delivery, but this is likely an interim solution until all can be automated by some dystopian marriage of autonomous city vehicles and drone delivery. In February, the company spent $700 million investing in Rivian, an electric pick-up truck driving company. It has also invested an undisclosed amount in Aurora Innovations — a self-driving car company. Scout, launched this year, is an autonomous delivery robot that looks like a beer cooler on wheels riding along your city sidewalk.
As Amazon’s revenue growth has slowed, Bezos is investing in all stacks of the logistics network to control future ecosystems of value. Peter Thiel, founder of PayPal and known libertarian, knows the value of this strategy: “Vertical integration is sort of a very under explored modality of technological progress that people would do well to look at more.”
Allowing Google and Amazon to control the mobility of persons and goods with winner-take-all dynamics is a dangerous ceding of commercial and citizen infrastructure to just two companies. In parallel, the internet was meant to be a decentralised platform to aid the flow of information – now over 70 percent of traffic on the web flows through the Google and Facebook ecosystems. Tim Berners-Lee, the creator of the internet, says it has all but died. When power radically concentrates in this manner, it stifles growth, innovation, and economic mobility. My co-author and I chronicle this in our book The Myth of Capitalism: Monopolies and the Death of Competition.
We often think of Amazon and Google having succeeded due to superior innovation, creativity, and business acumen. But much of their later success is derived from the ability to acquire competitive threats and eliminate them before they have a chance to take flight. Google, Amazon, Apple, Facebook, and Microsoft have collectively bought over 436 companies and startups in the past 10 years, and regulators have not challenged any of them. In 2017 alone, they spent over $31.6 billion on acquisitions.
The recent anticipation of increased antitrust regulatory scrutiny is welcome – but we need to look holistically at the companies to understand the true scope of their ambitions. To prevent further monopolisation of emergent markets, I recommend preventing further acquisitions. US Senator Amy Klobuchar of Minnesota has introduced a bill that would place a ban on acquisitions by companies with $100 billion market cap or higher. This would force companies to innovate instead of catching and killing competitive threats – it would also force VCs to take a different approach to funding, looking for companies that would actually compete with the tech giants rather than incentivising them to get bought out by them.
I also suggest mirroring the EU’s proactive approach of identifying nascent markets and potential competitive threats before companies have entrenched dominance. This allows them to more pre-emptively identify and later adjudicate on competition cases, rather than playing catch-up as the US regulators are now doing.
A world governed by Google and Amazon benefits them and their shareholders, while placing millions of businesses and jobs at risk. It is time to ramp up our antitrust efforts of the two companies, and take stock of their attempts to not only control the market, but become the market.