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> Many of these companies create immense global value and could not possibly have gotten to where they are w/o the resources of a FAANG (think YouTube, WhatsApp

by g_p 5y ago

> Many of these companies create immense global value and could not possibly have gotten to where they are w/o the resources of a FAANG (think YouTube, WhatsApp) -- and if you think otherwise, where are the competitors? (I mean...this isnt like cell phone contracts, you can switch chat clients or video streaming sites easily) Something that the CMA has recently become incredibly aware of is the power of network effects (and how they can be used to create a moat around one innovative and well-funded early-mover that prevents another equally innovative company from succeeding in the same way). Especially where the network effect is used with deliberate non-interoperability in mind (chat clients, and the corresponding protocols that all originated from XMPP, but diverge sufficiently to prevent interoperability, as an example), they seem increasingly interested in the competition factors at play, as it allows one dominant player to entrench that dominance and can lead to an uncompetitive marketplace. Where default settings are used to win marketshare across markets (see browser defaults, search defaults, etc.), this is one of the specific areas they like to investigate and act on. At a recent talk, one of the heads of the CMA explained their goal here - it isn't to ruin the tech sector, but rather to ensure that new and innovative tech companies can succeed today, and in the future, without today's entrenched tech players having a de-facto veto on their success, or the ability to acquire and sink or subsume them. The CMA doesn't want to see innovative new companies forced to get the permission of entrenched players (through platform business models and other control-yielding constructs we see being created today) to innovate - this is one of the reasons they're also looking very closely at Apple and their app store platform model, since it disallows competition and has been designed to give them a self-selected (not free-market) rent that helps them maintain their position. Decoupling the lock between the phone and the app store platform would force price competition and lead to new and innovative options, and a more dynamic market. While this seems an unpopular view in the tech world, it's probably worth contextualising that in 2012, the average lifespan of an S&P 500 listed company was 15 years, and this has been falling since the 1920s... Today's tech giants shouldn't last forever, and newer S&P companies tend to out-perform older ones. A dynamic market that doesn't allow FAANMG to try to preserve themselves forever will likely see more growth and opportunities in the long run. Ref: https://www.bbc.co.uk/news/business-16611040 https://www.bbc.co.uk/news/business-16611040

TuringNYC 5y ago
I agree with you in general, and when there is purposeful blockage of innovation, that is certainly worth pursuing. At the same time, though, i'm seeing literal pursuit against innovation. I'll note WhatsApp specifically. Before WhatsApp, sending an SMS to my grandmothers overseas cost $0.25 per message. Domestic SMS were $0.10. My college networking professor testified to the atrocity of markups by the telcos (http://content.time.com/time/business/article/0,8599,1921373,00.html http://content.time.com/time/business/article/0,8599,1921373...) which were something like 5000% Worse, there was no guarantee the message actually arrived. There was no double-checkmark GD, so you had no idea if it arrived. If it didnt arrive, both carriers would claim nothing was wrong, and just reaching customer service would be an hour on hold; you still got charged. Good luck calling grandma overseas, it would be a $50 for a one hour call unless you signed up for yet more un-cancellable international calling plans. We could argue that WhatsApp should have worked with the carriers and created something interoperable, but i'd argue that the status quo before WhatsApp was downright criminal exploitation of the masses, especially the poor. WhatsApp created a new system, perhaps not using standard protocols, but it works. It has worked 100% of the time for me AFAIK. Have you considered that the real opposition here is not from any customer but rather from the status quo of older companies unable to retain monopolies?
- g_p 5y ago
  This is a really good point, and I think some countries actions are certainly (as you say) blocking innovation - Australia's moves around getting search engines to "bail out" the media is one example. Clearly an independent (high quality) press is important, but a "search engine pays" system is far from independent! RE WhatsApp, I don't disagree it has done a world of good in disrupting the telcos. RE the CMA (the example from before), they definitely dont' give entrenched interests like telcos an easy ride (https://www.gov.uk/government/news/cellnex-and-ck-hutchison-deal-raises-competition-concerns https://www.gov.uk/government/news/cellnex-and-ck-hutchison-... for one that looks to be blocked from selling their tower assets to Cellnex). They're not afraid of shying away from big interests like in pharma either (https://www.gov.uk/government/news/cma-fines-pharma-firm-over-pricing-of-crucial-thyroid-drug https://www.gov.uk/government/news/cma-fines-pharma-firm-ove...) I definitely think WhatsApp has moved the needle and been a genuine power for good for disrupting meaningless usage-based billing. You can see this in mobile networks - at least in the UK, many don't even bother to meter and bill for calls and SMS now, since WhatsApp has utterly disrupted anything other than "unlimited". By eliminating the billing systems for most use, you also cut costs of running the network! I think the question for competition regulators comes down to whether or not it's "healthy" (from a competition/societal perspective) for WhatsApp to be bought by Facebook, the owner of FB, Instagram and Giphy. And to then be able to acquire anyone else that emerges. It's interesting to see the CMA focus on Giphy's advertising offering being withdrawn post-acquisition, and suggests to me they might be focusing on tangible "acquire-to-disrupt". As an innovator, acquisitions are obviously an important exit route to create a liquidity event, but I do fear that the market focuses too much on acquisitions from a limited pool of companies, and that we need to see a broader spectrum of acquirers, so we don't end up with a "Standard Oil" type situation. Acquisitions aren't the only exit route, though any move to limit acquisitions will (at least for the short term) likely reduce late-stage company valuations due to fewer options for founders. It seems likely that restrictions or increased scrutiny on M&A would likely lead to more tech IPOs down the line.

by g_p 5y ago

TuringNYC 5y ago

I agree with you in general, and when there is purposeful blockage of innovation, that is certainly worth pursuing. At the same time, though, i'm seeing literal pursuit against innovation. I'll note WhatsApp specifically. Before WhatsApp, sending an SMS to my grandmothers overseas cost $0.25 per message. Domestic SMS were $0.10. My college networking professor testified to the atrocity of markups by the telcos (http://content.time.com/time/business/article/0,8599,1921373,00.html http://content.time.com/time/business/article/0,8599,1921373...) which were something like 5000% Worse, there was no guarantee the message actually arrived. There was no double-checkmark GD, so you had no idea if it arrived. If it didnt arrive, both carriers would claim nothing was wrong, and just reaching customer service would be an hour on hold; you still got charged. Good luck calling grandma overseas, it would be a $50 for a one hour call unless you signed up for yet more un-cancellable international calling plans. We could argue that WhatsApp should have worked with the carriers and created something interoperable, but i'd argue that the status quo before WhatsApp was downright criminal exploitation of the masses, especially the poor. WhatsApp created a new system, perhaps not using standard protocols, but it works. It has worked 100% of the time for me AFAIK. Have you considered that the real opposition here is not from any customer but rather from the status quo of older companies unable to retain monopolies?

g_p 5y ago
This is a really good point, and I think some countries actions are certainly (as you say) blocking innovation - Australia's moves around getting search engines to "bail out" the media is one example. Clearly an independent (high quality) press is important, but a "search engine pays" system is far from independent! RE WhatsApp, I don't disagree it has done a world of good in disrupting the telcos. RE the CMA (the example from before), they definitely dont' give entrenched interests like telcos an easy ride (https://www.gov.uk/government/news/cellnex-and-ck-hutchison-deal-raises-competition-concerns https://www.gov.uk/government/news/cellnex-and-ck-hutchison-... for one that looks to be blocked from selling their tower assets to Cellnex). They're not afraid of shying away from big interests like in pharma either (https://www.gov.uk/government/news/cma-fines-pharma-firm-over-pricing-of-crucial-thyroid-drug https://www.gov.uk/government/news/cma-fines-pharma-firm-ove...) I definitely think WhatsApp has moved the needle and been a genuine power for good for disrupting meaningless usage-based billing. You can see this in mobile networks - at least in the UK, many don't even bother to meter and bill for calls and SMS now, since WhatsApp has utterly disrupted anything other than "unlimited". By eliminating the billing systems for most use, you also cut costs of running the network! I think the question for competition regulators comes down to whether or not it's "healthy" (from a competition/societal perspective) for WhatsApp to be bought by Facebook, the owner of FB, Instagram and Giphy. And to then be able to acquire anyone else that emerges. It's interesting to see the CMA focus on Giphy's advertising offering being withdrawn post-acquisition, and suggests to me they might be focusing on tangible "acquire-to-disrupt". As an innovator, acquisitions are obviously an important exit route to create a liquidity event, but I do fear that the market focuses too much on acquisitions from a limited pool of companies, and that we need to see a broader spectrum of acquirers, so we don't end up with a "Standard Oil" type situation. Acquisitions aren't the only exit route, though any move to limit acquisitions will (at least for the short term) likely reduce late-stage company valuations due to fewer options for founders. It seems likely that restrictions or increased scrutiny on M&A would likely lead to more tech IPOs down the line.