Which of the FAANG's Will Get Broken Up?
Not
all of them. And not Amazon. And don't forget to include Microsoft in this
bunch of dominant, powerful tech companies. But the idea that they're all going
to get trustbusted is silly.
General managing partner, G2T3V and Chicago High Tech Investors
I'm surprised at how many smart people don't understand the
very different long-term prospects of the members of the FAANG 5. As things
begin to heat up and the FTC starts
specifically looking at this cast of characters , it's too simplistic to paint them all with the same
brush. Because, while their predatory behaviors may be similar on the
surface, there are substantive differences in their businesses and business
models. This suggests that the government's likelihood of success in attacking
their alleged anti-competitive actions will vary widely.
I spoke last week at a financial conference and one of the
other presenters cautioned the audience about how quickly tech-centric
businesses can vanish. He noted that only Intel remained today as a major
player from a select group of the early semiconductor pioneers. And he
suggested that we'd see a similar turnover among some former tech leaders in
the next few years. While he didn't name names, it was clear that his short
list included IBM, GE, HP, Xerox, etc. That's astonishing, when you think about
it. These companies were once the bluest of blue chips.
I'd say that he will be about half right (two out of five)
regarding the FAANG 5. But to even understand the proper landscape, we
probably need to start by changing FAANG to FAAMG. That's because Microsoft
will be a major player for a lot longer than Netflix, which is looking more and
more like a first-moving, one-trick pony and under tremendous competitive cost,
price and content pressures. Meanwhile, unfashionable Microsoft, which still
owns the desktop, is just hitting its stride in multiple adjacent verticals,
like the Azure cloud. In the end, highly diversified lines of business and
multiple material revenue streams will actually aid Apple, Amazon and Microsoft
in making their antitrust arguments.
Say what you will about the FTC's light and late responses,
at least the agency figured out that taking another look at Microsoft is a lot
more relevant than worrying about Netflix. That's especially true if the
primary investigative focus is going to be around systemic acquisition patterns
that target young, innovative startups before they get big enough to disrupt
the industry status quo. Netflix is certainly acquiring and creating content as
fast as humanly possible, but so are half a dozen other major media and
entertainment players with equally deep pockets and other advantages. In
addition, I'd say that Microsoft's past antitrust traumas along with its new,
hyper-low-key leadership, is going to be a pretty effective deterrent and
largely inoculate it from much of the saber-rattling.
But unlike Apple and Amazon, you can bet that Facebook and
Google are both going to come under repeated fire not simply from federal
regulators, but also from every greedy and cash-poor states attorney general,
every class action lawyer, and every country in Europe as well. Facebook's $500
million settlement in Illinois for
misusing bio-metric data is just an early indicator of the flood of claims and
litigation that are coming. These are rich firms, easy targets who haven't
handled repeated PR blowups in any effective fashion, and are especially
vulnerable around privacy, targeting and data security issues-- which are, of
course, at the very heart of their business models.
On the other hand, Apple and Amazon have a much easier path
to avoid prosecution and Microsoft also seems to have skirted the whole set of
issues in these two areas. In the last year at least, no one I know has Binged
anything. And it seems to me that no one ever fretted for a moment about
Microsoft's super-sized acquisitions of Skype, LinkedIn and GitHub in terms of
stifling young competitors. If anything, given how poor a job Microsoft has
done in terms of integrating Skype into its product suite, the concern is
almost the complete opposite - that Microsoft will end up ruining Skype and
LinkedIn rather than building successfully on them. On the other hand, it's
interesting to watch the Teams team from Redmond attack Slack, which feels a
lot like Internet Explorer crushing Netscape in the old days. We'll have to see
how that plays out; it's unlikely to end in an anti-competitive acquisition
anyway.
Product-first businesses like Apple connect to consumers in
far different and more personal/emotional ways. Moreover, Tim Cook has gone way
out of his way to make privacy a very clear crusade for Apple as well as a
sharp stick in the eyes of Apple's big tech competitors. We'll need to watch
closely (no pun intended) as the Apple watch becomes more and more of a
wearable medical device - although I'd have to say that's not much of a risk
yet as the stupid thing keeps telling me I've fallen down and tries to call
911. Note to Apple: I'm still vertical.
But, all kidding aside, this is another important and
differentiating factor. The Apple watch arguably--and with my express
consent-- uses data to improve my life, my training and physical activities,
and my health in relatively non-invasive and additive ways. This is miles away
from Facebook and Google selling small slices of my mind-share and attention to
every advertiser and marketer extant to serve up an unending flood of
ads--product and political-- that do next to nothing except enrage me and waste
what little time I have left in my life. It's hard to argue that the ad
business has ever been a worthwhile enterprise --JUUL for kids, anyone? Every
consumer and regulator knows that any claims by advertisers and marketers of
doing any good for society are bogus. They are in it to make billions on their
ad sales.
An interesting aside is Google's recent earnings report,
which makes it very clear that search--the core and largely worthwhile business
until corrupted by Google's strategy of selling the top search result spots to
the highest bidders-- was slowing. Only ad sales associated with YouTube
are growing and keeping the ship moving forward. Just to show you how difficult
it is to compete with the Big 4, remember that even Google couldn't make a
successful social network out of Google+ and had to shut the thing down. Here
again, you could argue that it would be a piece of cake for the government to
simply slice off YouTube from the Googleplex and turn the video service into a
free-standing and viable enterprise. Easy peasy.
If you do the same separation math and pull Instagram out of
Facebook, you see a pretty clear indication that the Facebook core is stagnant
while Instagram (and especially ad and commerce sales connected with it)
continues to grow rapidly. Much like Microsoft needs to be careful around
Slack, it's going to be fun to watch the claims and the ultimate litigation
when Snap finally shuts the doors and points a nasty finger at Facebook for
stealing every single thing that Snap ever did. Of course, the guys at Snap probably deserve every bit of
bad news they get.
Amazon is equally well insulated for a couple of important
reasons as long as Jeff B can control himself in terms of his private life, his
politics, and doesn't get lost in space. First and foremost, a
"forced" spin-off of Amazon Web Services (AWS) would be accretive to
all the current shareholders and probably quickly add to their respective
portfolio values once people learned just how lucrative the cloud business
really is and how broadly distributed and entrenched Amazon's customer base is.
This may end up resembling the old Uncle Remus story where Br'er Rabbit begged
Br'er Fox not to fling him in the briar patch where he could promptly escape
the fox's clutches. Let's just say that helping Amazon create a trillion-dollar
AWS business wouldn't be the worst thing the government could do to them.
But even more to the point, Amazon actually does use our
data to make products and services more relevant and attractive to us. One
simple example is that, while Facebook and Google re-target the crap out of us
based on our search and traffic activities, Amazon knows what we have actually bought
and doesn't waste our time or advertisers' money offering us the same pair of
shoes we just bought yesterday.
Another powerful and locked-in incentive - especially for
seniors - is automated replenishment, in which refills and new supplies
magically appear on time on your doorstep. More than 70% of what we buy every
week at the supermarket is the same stuff. Why bother to make that trip and do
all that heavy lifting if Amazon will deliver it free to your door?
Amazon Prime with more than 150 million members worldwide and growing is an
unstoppable force and so attractive and compelling to people that any
politician with a brain is going to steer as far away as possible from
interfering with that love affair. And, whether President Trump knows this or
not, AWS runs a huge amount of the government's own web services and that area
of involvement is also rapidly expanding. Finally, there's no question that we
all love a good deal and we're all convinced that Amazon really does offer us
the best pricing, service, support and delivery system in the country. Hard to
look a gift horse in the mouth.
If you thought the old "I want my MTV campaign"
was effective, just imagine the heat and screaming that our super-sensitive
politicians and regulators would face from an enraged public if they got in
Amazon's way.
PUBLISHED
ON: FEB 18, 2020