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Net Giants Policy

Why Breaking Up Big Tech Isn’t the Answer

Elizabeth Warren is making lots of noise about breaking up tech companies. Cakmak and Guttridge disagree.

There’s a growing chorus of rhetoric and grandstanding about breaking up the world’s largest tech companies. Some of the proposals are way off. But you do deserve to be mad and perhaps in some cases grab your pitchforks and demand justice.

One of the most provocative, outspoken Big Tech critics is Sen. Elizabeth Warren, who’s charging forth in her bid for the Democratic presidential nomination with a bold proposal to unravel much of the last decade’s consolidation in tech—whether it be prying Whole Foods away from Amazon, Waze from Google, or Instagram from Facebook.

The problem with this line of thinking is that it’s based on the historical precedent of antitrust enforcement without recognizing the problems we face today. There are certainly areas which require further scrutiny, such as Apple’s app store and certain mergers and acquisitions that concentrate markets. But Sen. Warren offers a specific solution to an unspecified set of problems. That’s the wrong place to start.

But what are we demanding justice from? Why, exactly, are we so mad at these companies? Surely, it’s not simply because they are big. In fact, the bigger these companies get, they generally improve the services and experiences they deliver to consumers. The problem can’t be absolute size, because Apple, despite its issues, isn’t generally designated as an evil operator by consumers.

There’s only one answer: We’re mad because we got screwed. And the reason we’re most mad at Facebook and Google is because they screwed us the most.

We don’t mean to suggest it was all intentional, nor that it was planned from the beginning. In fact, these companies built amazing services and likely didn’t fully appreciate what they were getting themselves into as they grew larger and larger.

Here’s the real reason to be mad at tech companies: because of the asymmetric value transfer of our personal information to them so they could monetize that data. In other words, they enjoy 40%-plus fat margins, while we’ve lost any semblance of privacy. To make things worse, we have no idea how our data is collected, used—and sold. It’s a one-way value transfer, and one we weren’t explicitly paid for. While we thought we were getting a “free” service, there was nothing that warned us that the value of our information would explode higher while we saw none of the gains.

That said, breaking up these companies doesn’t solve the problems at hand. It doesn’t transfer the power over personal information back into the hands of consumers. And it doesn’t realign the internal incentives for Big Tech companies, which in the end is what needs to happen.

Even if you separate some assets from Big Tech companies—like, say, breaking Instagram off from Facebook—what’s to prevent those companies from simply sharing the data across their different platforms? Should government limit data sharing between those services? Or should it limit the amount of data which can be collected and monetized? Would consumers be comfortable with a corresponding decline in service quality? Because that would be inevitable.

The bottom line is this: you don’t want these companies broken up. Here’s why. First, it doesn’t change who controls the data. Privacy concerns will linger no matter how much government were to slice and dice these assets. Second, scale makes services better, through enhanced efficiencies and more personalization. So, consumers are better off with a few large platforms rather than lots of small ones. While niche players like Pinterest would welcome fragmentation from a competitive standpoint, ultimately small businesses would suffer from higher customer acquisition costs and lower returns on investment. Third, your personal information is worth more to the tech giants when it is combined with everyone else’s. That means they are going to try to keep consumers happy with how they treat our data, so we have more leverage in facilitating change on those platforms than if the data were fragmented across many of them. Just as the assets of big manufacturing firms were big factories, digital platforms have data. Take that away, there’s little left.

We are just now starting to see the consequence of this asymmetry. When you think about the value of these companies – not the market value, but the real value – it’s much greater when you factor in the data that is housed. Data is not explicitly valued in the market, but that value shines through in the margins of Facebook and Google, when they can trade access to our data for huge amounts of advertising. The key thing to keep in mind is that consumers should be able to take part in that trade.

The good news is that no company is immune to competitive innovation over the long-term, as the incentive grows to unseat bad actors with outsized profit profiles. To the extent these “data squatters” refuse to let customers participate in the value they create, they are increasingly vulnerable to disruption.

So, if Sen. Warren’s approach is wrong, what should we do? We need to shift the conversation from calling for Big Tech break ups to identifying specific solutions to specific problems. This could take a multitude of forms, such as regulating transparency requirements on how, when, and where data is collected, placing limits on acquisitions and legal power over third-parties, or moving toward creating a new kind of company that shares the gains from data monetization with the supplier of data themselves: you. New business models will likely emerge to do just that, because the companies’ current margin structures are ripe for the taking. Zuckerberg just last weekend argued that we need new regulations on how personal data is treated, and other aspects of how tech is governed online. That already increases the likelihood that business alternatives will be given room to breathe.

If we understand why consumers are upset and carefully specify the issues, at least we can pave a path toward viable solutions. Breaking up Big Tech isn’t one of them.

James Cakmak was a Wall Street security analyst for over 10 years covering the Internet sector. He is also co-founder of Snailz, a digital beauty booking marketplace operating in New York. Follow him on Twitter: @JamesCakmak

Ryan Guttridge, Adjunct Professor at Smith School of Business, University of Maryland, contributed to this article.

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