Known now as “FAANGM” stocks on Wall Street, these companies alone spurred the US markets last year, notwithstanding the March 2020 crash in the early days of the global health crisis. By year end, the Standard & Poor’s index (the barometer of corporate America) had gone up more than 18%. Two-thirds of that gain was entirely due to these major firms.
How did they get so big? In today’s business world, you must grow or perish. The name of the game is growth by merger or acquisition.
Since these tech companies were founded, they have acquired numerous subsidiary companies. From 2005 to 2020, Alphabet, Apple, Amazon and Facebook had acquired 385 other US companies, according to PitchBook. Alphabet alone had acquired 185. Because when disruptive start-ups try to compete, Big Tech can just buy them out.
The Digital Power Play
Big Tech has rapidly been amassing a new kind of digital power through its mastery and control over digital technology that is far more potent that the traditional commercial power large corporations typically have.
Big Tech is shaping today’s society in areas other than just technology. These companies have wrought a socio-cultural evolution of epic proportion with their sophisticated technology and have driven social change at warp speed.
And that was before the Covid-19 pandemic. Now with a year of lockdowns, curfews, and social distancing, people have had to rely more than ever on technology and gadgets to create, communicate, shop, and recreate, so spending on computers, cloud-computing services, video games, online retail, online movies, and digital advertising has surged.
Almost every aspect of people’s lives today is impacted by one or more of these companies, and not just in the US. They have been called the American empire.
14 of the world’s 20 most valuable tech firms, by market capitalization, are US companies. Europe is the headquarters of only one, SAP, and the other five companies are Chinese.
Broken down, digital power is a combination of economic power, technological power, and political power.
Economic Power
All of the tech giants have a platform business model to some degree. They connect suppliers with consumers in an ever-growing networking effect. The more consumers the platform attracts, the more appealing it is to suppliers. Over time, market share at both the supply and consumer ends increases. The global reach of the internet amplifies these network effects exponentially.
Digital platforms also collect data, creating information asymmetry. The amassing of vast amounts of data about both suppliers’ and consumers’ behavior that other companies don’t have confers a competitive advantage on the platform.
Technological Power
Big Tech’s technological power derives from the fact that these companies design and operate the technologies, effectively creating the rules of the road for everyone else. Designing algorithms, for example, determines outcomes that apply to millions.
Political Power
Like regular companies, Big Tech can wield political power through lobbying of legislators and decision makers. Tech companies spent $436 million last year in US federal lobbying. 15 companies accounted for almost a quarter of that.
Unlike regular companies, however, tech companies have a built-in consumer base that they can also mobilize to oppose undesirable regulatory outcomes around the world, a significant competitive advantage.
They also control and direct what political information and media reach their users. They are not mere conduits, as we’ve seen with the permanent suspension of Donald Trump from Twitter and his ban on Facebook for possibly another six months. Moreover, they can be used as tools in disinformation campaigns by foreign powers.
The bottom line is that these tech companies have and can exercise power in ways never before attained by corporations.
The question is, how do they use that power? Do they use it for the public good? Or do they wield it for private gain?
The CEOs of four of the companies faced tough questions last year in a hearing before the House Judiciary Committee’s antitrust panel.
In March, President Biden tapped Columbia University law professor Tim Wu for the National Economic Council as a special assistant to the president for technology and competition policy. Wu, an outspoken critic of Big Tech, has warned about the danger of having too much power in the hands of few companies.
The question facing many governments both in the US and around the world is whether such power should be reined in and, if so, how? The Biden administration and US lawmakers appear poised to tackle these questions.