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Photography by Ivan Vrani?
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As for Monday's big sale in big cap technology, was the market wrong?
Apple
(ticker: AAPL),
Alphabet
(GOOGL)
Amazon.com
(AMZN) and
Facebook
(FB) lost Monday a collective market capitalization of 140 billion dollars. Who led the
Nasdaq Composite
lose 1.6% even if the
Dow Jones Industrial Average
closed slightly. Technology sales have been prompted by reports that companies could be subject to scrutiny by antitrust regulators, including the Ministry of Justice against Apple and Alphabet and the Federal Trade Commission on Facebook and Amazon. To make matters worse, the Judiciary Committee of the House announced Monday "a bipartisan survey on competition in digital markets".
And investors sold shares in all four. But maybe they should have loaded instead.
That's what Scott Galloway thinks. A declared serial entrepreneur (including the Red Envelope eCommerce company), who teaches marketing at New York University, Galloway has been saying for years that investors should push Alphabet, Facebook and Google, in particular, to split their activities.
The alphabet, he thinks, should disappear from YouTube. Facebook, argues he, should run Instagram and WhatsApp. And Amazon shareholders, he is convinced, would be the big winners if the company ceded Amazon Web Services, which could be one of the 10 largest companies in the world independently. In any case, he thinks the shareholders would be the big winner of a dissolution strategy.
"The DoJ and the FTC are succeeding slowly but surely," he says. "But the Monday market has been deceived. Break them up and the benefits will be good for shareholders. There is an opportunity to create huge value. Galloway notes that Facebook, for example, has stifled the value of the companies it has acquired, which has had the effect of dissuading talented founders and reducing innovation. He says that spinoffs and ruptures almost always create shareholder value – they do not destroy it. He points to the break in
AT & T
and the
eBay
spin of
Pay Pal
like cases where huge value is born from the fragmentation of a large company. "In the long run," he says, "conglomerates do not work."
Roger McNamee, the long-time technology investor and author of Zucked: Waking Up To Facebook Catastrophe, thinks that the real problem of the big players in technology is not valuation, it's their fundamental business model.
He sees serious problems in the four companies at the heart of the sale, but simpler solutions for Apple (which should change the financial model of the App Store) and for Amazon (which it should probably exit the market). Amazon Basics, competing with other vendors on its own platform.) He has more serious concerns about the business models of Facebook and Google, which he says brings no benefit in exchange for the huge amount of data collected on consumers.
"They make 95% of their profits with products that are at best ethical, like the chemical industry in the 1950s, creating massive externalities," says McNamee. "They should both change their business models."
One question is whether the leadership of these companies should stand up to potential antitrust actions and proactively split assets that were once self-sustaining businesses. Clearly, insiders in Washington are increasingly disrupted by the concentration of power in advertising and online commerce.
"A small number of unregulated mainstream platforms hold tremendous power over online commerce, communication and information," the House Judiciary Committee said in a news release announcing the new investigation. "Based on investigation reports and monitoring by international policymakers and law enforcement officials, it is feared that these platforms will have the motivation and the ability to harm competitive process. The Antitrust Subcommittee will conduct a thorough review of the market power of the Giant Technology Platforms. This is the first time that Congress is conducting an investigation into this behavior. "
The role of the biggest technology on both sides of the aisle is cause for concern. President Donald Trump and Senator Elizabeth Warren are also uncomfortable with the power of the country's most influential technology companies. In a Medium article in March, Warren said, "The big tech companies of today have too much power over our economy, our society, and our democracy." She claimed that Google, Facebook and Amazon in particular had "faded competition, used our for-profit information and tipped the balance of the game against everyone", hurting small businesses and ongoing innovation.
Should investors be worried? Maybe not. Instead, they should see an opportunity to buy and push for change as soon as possible.
Write to Eric Savitz at [email protected]
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