Silicon Valley and the ‘new’ monopolies
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Silicon Valley and the ‘new’ monopolies

The world’s five biggest companies – Apple, Alphabet, Microsoft, Amazon, and Facebook – all have one thing in common: they’re technology companies. They have a couple of other things in common too: while they all started out as American companies, they’re really global forces now; and, they come dangerously close to being monopolies. Naysayers have been casting the word ‘monopoly’ around (at least in relation to Google, if not its peers at the top) for some time, but now the talk of break-ups have shifted a gear. Now, it’s people inside Silicon Valley that are talking about it – and, given that it affects not just Google, but Amazon and Facebook too – this might tell us something about technology and the way business is conducted in the future.

tech valley

First things first: there’s probably not much risk of any of these companies being broken up in the way AT&T was – so investors should hold back from panicking. The reason for this is that Facebook, Google, Amazon, and their peers, are monopolies in very different ways to the commonly understood meaning of the term.

Tech analyst Ben Thompson shines a light on this by explaining why, in technology, the big tend to keep getting bigger. Thompson’s Aggregation Theory (researchable at his site, stratechery.com if you’re interested) basically boils down to an analysis as to how the internet has disrupted relationships with suppliers and consumers. Now, he says:

“the best distributors/aggregators/market-makers win by providing the best experience, which earns them the most consumers/users, which attracts the most suppliers, which enhances the user experience in a virtuous circle.”

In a practical sense, this means much of the worry caused by ‘old’ monopolies doesn’t factor in to conversations about the world’s reigning tech-titans. What if Google and Facebook start gouging prices? Well… prices on what? They don’t sell anything to consumers – they just provide a top-notch free service. Both companies make money from third parties via advertising revenue, which is predicated on the popularity of their platforms, thereby necessitating continued quality and continued freedom. And, as for Amazon… well, prices tend to go down on the world’s biggest Ecommerce site as it continues to benefit from even greater economies of scale.

In a very literal sense, for most users these companies are the internet. The platforms they have developed have become the launching point for numerous other companies and businesses. How many times do you go online to look for something and not use Google? What this means is, the quality of their service, and the position they fulfill in the informational infrastructure of the internet, puts them in a privileged position. It is usually claimed of banks, but today’s tech titans may literally be ‘too big to fail’.

Disclosure

Dominion holds Alphabet, the parent company of Google, Amazon and Facebook, in its Global Trends Ecommerce Fund. 


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The views expressed in this article are those of the author at the date of publication and not necessarily those of Dominion Fund Management Limited. The content of this article is not intended as investment advice and will not be updated after publication. Images, video, quotations from literature and any such material which may be subject to copyright is reproduced in whole or in part in this article on the basis of Fair use as applied to news reporting and journalistic comment on events.