- Facebook sued by 48 states in the US
- Google sued by Justice department for anti-trust violations
- EU opens investigations against Apple for its App Store practices
The poster boys of Silicon Valley are sweating. Suddenly, the US government and the EU have opened multiple fronts on their continued actions against monopolistic and seemingly competition throttling activities of the tech giants. While the action in the US could just be the beginning of a very long battle, history suggests that the EU is a lot more agile when it comes to its investigations.
The long and short of the investigations is that we suddenly have visions of these large behemoths potentially broken up into smaller entities. In the case of Facebook, the lawmakers are calling explicitly for the company to be broken up while in case Google, the justice department has adopted a very narrow approach to its current investigations as against a broad-based enquiry. Google is being investigated for its ‘search’ business, which is also its largest and most visible business.
The reason is simple. Department of Justice (DoJ) is citing the 1998 Microsoft case as a precedent and asking for Google to dramatically change its search business dynamics. This, DoJ believes will make its case more compelling as against a ‘kitchen sink’ approach, where it starts investigating every single aspect of Google, including its news syndication business, where countries like Australia have started legislating for Google and Facebook to pay the publishing companies back for carrying their content on their respective platforms.
The boilerplate that is being created by DoJ, and the Australian government could soon find its way into other countries, like India, where the two companies enjoy a massive monopoly– Google in search and FB on social content consumption.
Another interesting fallout of the DoJ investigstion into Google’s distribution practices is that Apple, is likely to get dragged into it, since Apple’s products have Google as the default browser. As Misha Ketchell points out in the Conversation “about half of Google’s search traffic originates from Apple devices. If Apple were to replace Google with an alternative default search engine on its devices, I estimate that Google could lose US$30 billion to $40 billion in annual revenue, assuming most”.
Herein lies the rub. So intertwined are these relationships – between Google and Apple, between Microsoft and Google, between Facebook and WhatsApp — that detangling these could take years.
The case against Facebook is relatively weaker, based as it on a perception of strength, rather than actual anti-trust behavioural data. “Too big” or “too influential” will probably get Facebook more critics but it is unlikely that these will cut the mustard with the courts.
The European way is a lot better. Investigate, prove and fine.. repeat. As a result, tech companies in general and the tech giants in particular are extremely wary of getting on the wrong side of EU antitrust investigations.
While history is not on the side of the US investigators – they failed to break up Microsoft in 1998 and in case of IBM, gave up in 1983 after 12 years of toil — this time around, especially in the case of Google, DoJ may have a better shot by focussing on the specifics.
What then? Irrespective whether the US authorities succeed in their efforts, some downstream impact is inevitable.
Firstly, there will be a lot less sanctity attached to M&A transactions. The argument being that if FTC, the watchdog which approves all such deals, can change its mind after the deal is done and take retrospective action, then no deal is safe. Companies will be wary of large eye-popping WhatsApp kind of transactions.
Scaling up could attract lesser VC interest. Simply because, if the VC’s exit is not guaranteed or could be in jeopardy even after the deal is done or even after a few years, then the interest levels will drop. Also if the VC exit is not going be massive, then again, there will be a drop in interest.
The bigger problem could happen in the cultural mindset of the silicon valley. The dreamers and those who are looking at ‘ideas way out there’, like Facebook, WhatsApp and Google were may get a tad discouraged. You may not see another Zuckerberg wannabe or a jobs wannabe, since the lawsuits are likely to be bruising events that could potentially have long reaching psychological impact on the very attitude of Silicon Valley.
(The author L Subramanyan is Founder and CEO of Trivone)