Welcome to the fifth edition of the Techonomics newsletter!
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This week we dive into the various big tech strategies to avoid regulation, AI and robotics investment’s impact on the labor force, and app store drama.
Visual of the week
💳 Retail’s rebound: Let’s start with some positivity. There’s a deeper story to the data, but retail sales are back to pre-pandemic levels. It’s where we are spending, and on what, that’s shifting. (link $)
One longer take
🙉 Tread not-so lightly: Two weeks ago in Newsletter #3, we took a look at data teasing “monopoly-or-not” after the big tech congressional hearing. This week there’s a surprising trend: even while under the Congressional and international regulation microscope, Alphabet, Amazon, Apple, and Facebook are making acquisitions, investments, and participating in anti-competitive moves that would perk any regulators' ears up.
Google is investing in a mobile phone hardware company, Amazon is in talks to buy out mall retailing space for their CFCs and sending broadband satellites into orbits, Facebook is rolling out its TikTok copycat, and Apple continues to shut out gaming competition from its App Store.
My initial reaction was wow, these companies are pushing it. But after thinking through it, I came to a less-than-novel hypothesis: companies move faster than regulation, lobby against what regulation is in place, and make strategic moves without any regulation at all.
A colleague recently summed this up: it’s much easier for an attacker to find and exploit one weakness than it is to defend all vulnerabilities. Similar to fraud in banking or hackers exploiting software, these companies are simply winning at the game of whack-a-mole with regulators.
In Newsletter #3 I called for a new look at antitrust law to bring in the new age of technology company dominance, even if these companies aren’t necessarily monopolies. Now, we will look at some ways these companies establish dominance outside of the antitrust regulated methods of building (platform leverage), buying (mergers and acquisitions), and partnering (deals).
Corporate Venture Capital (CVC)
Corporate Venture Capital has been around since the early 1900’s, so why does Corporate Venture take a different form with big tech? Because data and platforms are a commodity, anti-competitive data access and platform leverage are harder to police, and it’s not highly regulated by the FTC or DOJ.
What this means is that large tech companies can invest in industry adjacent or competing global businesses enabling them to share data, leverage partnership platforms, inform their own internal innovation, and sway decision making with little more than monetary risk.
Let’s look at some examples.
Two weeks ago Google announced a $450 million investment in ADT security to prop up its Nest smart home division with a service and service installation network. This week they announced a large investment into mobile device maker HMD Global’s $230 million series B as a strategic play into EU OEM manufacturing devices running Android. Google’s tentacles are wrapping around various adjacent, and extremely important parts of their vertical pipeline, from manufacturing to installing devices, all without direct regulatory oversight you’d see in an acquisition, with most of the benefits.
Google has long had a very successful CVC arm called Google Ventures, setting the bar for tech corporate venture capital.
What about the other companies?
Facebook just announced a new CVC arm to invest in startups to “move fast and break things” before regulation catches up. After a large number of acquisitions, a few of which are the major complaint for Congressional antitrust regulators, Facebook needs to continue investing and widening its ecosystem moat, but will have a harder time via normal channels.
Apple doesn’t have a direct CVC arm, and hypotheses point to secrecy and IP protection within the company as the major reasons why. However, Apple still has its hand in investing indirectly through SoftBank. They may be playing the long-game to stay under the antitrust radar.
Like any venture capital firm, investor, or private equity group, CVC arms are regulated by the Security and Exchange Commission. This means the normal KYN (know your customer) and insider trading regulation. The SEC isn’t preventing M&A deals like the antitrust arm of the DOJ in conjunction with the FTC. CVC arms are a better way to partner, share data, leverage platforms, and exert influence to further ecosystems while flying under the regulatory radar. It’s internal lobbying at its finest that doesn’t seem to be going anywhere ($).
Exploiting net “good” for Americans
These companies also get around regulatory scrutiny by showing their actions as a benefit to the American consumer, the spirit of antitrust law. The examples this past week were Amazon’s two investments, one regulated and one not, and Facebook’s announcement of Instagram Reels.
Amazon’s announced a potential investment in CFCs (Central Fulfillment Centers), like those we discussed in Newsletter #4, but this time leasing mall space vacated by large bankrupt retailers like Sears and JCPenny ($). Amazon is literally taking over store retail, which seems like it’s a bit borderline, but who’s going to fill that vacant space and create jobs when those companies can’t afford to do so?
The second was a regulated (and FCC approved) investment in 3,200 satellites ($) to be put into orbit to improve broadband capabilities, lowering costs and increasing speeds for end consumers. There’s also a political angle in an international race to maintain control over internet infrastructure in space with lots of competition from China with GPS ($). The US regulators gave Amazon the right-of-way to prove American ingenuity and benefit the American consumer.
Facebook’s announcement of Instagram Reels differs in that its software focused and coupled to a product release, but the spirit of powering the American good is still there. Facebook’s not a stranger to copycat products, and it’s another reason they are under the magnifying glass.
But, they released Reels, the copycat of TikTok’s product experience, in India before a further rollout. They are leveraging their position as a US company to skirt regulation. This is anti-competitive behavior that’s hard to regulate across international companies without country cooperation which isn’t going to happen, and even if that wasn’t the case, why would the US jump in when it’s in their interest to bolster Facebook within global competition?
In the same way the US government isn’t going to bat an eye at Instagram Reels, it’s much better to have Amazon compete in the space race and pump money back into the commercial real estate market. All of these actions provide consumers with a better experience than a bunch of malls that look like Starcourt mall in the last episodes of Stranger Things season 2, and in the case of Facebook, prevent other countries from beating out the US.
As these US tech companies continue to dominate, provide benefits to the COVID-19 economy and international competition, and leverage their positioning, it’s a gray area and a balance between monopolistic behaviors that can be regulated, those that can’t, and those that will be given a free pass for the good of the American consumer.
While these companies act on quick globally strategic moves flying under the radar of antitrust regulation, the companies will lobby to slow the antitrust regulation that is in place. However, that will only go so far. It’s the moves they make that avoid regulation which will help their ecosystems until the regulators catch up.
🦾 AI investments and robotics over manual labor: Two cool stories this week looking at AI ($) and robotics investments from companies looking to deal with the windfall of decreased profits and their existing payroll. Fortunately, this is efficient investment in key technical areas. Unfortunately, it will have a short-term impact on the labor force until we are close to equilibrium through job shifts and retraining. Ethical questions will start to show prominence. (link)
👩💻 Remote working perks: If you don’t work in technology companies, you still have likely heard of the benefits and perks used to poach and support existing employees. While we all thought WFH was the best benefit with COVID-19, companies are making a shift in additional perks offered because talent competition still exists as tech continues to dominate the market. What benefit would be best for you: childcare, a home office setup, or… a magician? (link $)
🗞 Newsletter on newsletters shared in this newsletter: I am writing about this in my newsletter, which is meta enough, but I have always wondered what the economics of standalone newsletters like this one, the bundling of media content, and the finite amount of human attention. Here’s a really good read on the dynamics. (link)
📲 Mutiny on the App Stores: Fortnite game maker, Epic Games, is pushing hard on in-app purchasing requirements and upper bound rake of 30% of Apple’s App Store and Google’s Play store, bypassing the in-app purchasing APIs with their own way to pay. In a move of distribution platform defense, Apple and Google pulled Fortnite from their app stores. Frankly, Epic Games will get the companies thinking about a defense strategy, but it’s unlikely to have much impact on the antitrust discussions. Not super anticompetitive when there are other distribution channels like the web and Microsoft’s store. These companies do provide a solid distribution service and this is like individual sellers telling UPS that they don’t want to pay for shipping. (link $)
👈 Pointing fingers: Facebook is also pointing fingers at Apple in a strategic bet to divert antitrust attention. Whether you agree with the companies like Epic Games and Facebook, or if you believe in the App Store’s value as a distribution mechanism, the narrative of passing on the revenue to users is unlikely to hold over the long-term. Efficient pricing tends to win out in markets, and that means an equilibrium will be reached in product pricing and market expectations. (link)
📈 IPOs-a-plenty: IPOs in the US softened in Q1, but are coming back with tech strength. (link)
📱 Shaking, together: Ok —Take my data, Google. They announced earthquake detection with their network of Android smartphones. (link)
🎥 What’re you watching? Media consumption changes cut by generation. (link)
🇹🇼 Taiwan’s golden ticket: Who’s in? (link $)
🌏 Where are the next internet users? We walked through India as a really important area for technology investment in our first newsletter. This week, I stumbled upon an awesome infographic that visualizes the market opportunity. Pretty staggering. (link)
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