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ERIC REGULY

Saturday, January 27, 2018

Big Tech lost its halo last year when it came under attack for everything from excessive market control to unwitting roles in Russia's meddling in the 2016 U.S. election. If the start of 2018 is any indication, the criticism isn't about to give up, nor should it, as the FANG companies - Facebook, Amazon, Netflix and Google - form the greatest concentration of corporate wealth and power the world has ever seen.

This week, at the Davos yak-a-thon for the rich and powerful, Hungarian-American billionaire and philanthropist George Soros called Facebook and Google a "menace" to society and "obstacles to innovation," comments that should not be dismissed as the ramblings of a grumpy old man. Meanwhile, U.S. cities that have offered gobs of taxpayers' money to Amazon in hopes of attracting its second headquarters are being accused of pandering to latter-day robber barons. Amazon's market value is $665-billion (U.S.) and its founder and chief executive, Jeff Bezos, is the world's richest man. Even small increases in Amazon's share price can add billions to his wealth.

More than a few politicians now have the FANG companies in their sights.

One is Minnesota Congressman Keith Ellison, the deputy chair of the Democratic National Committee, who is making a career of taking on Amazon. In a tweet earlier this month, he blasted the company for paying some of its warehouse workers wages so low that they had to rely on food stamps to get by (this was confirmed in a new study by Policy Matters Ohio). He recently introduced legislation, called the 21st Century Competition Commission Act, to address potential anti-competitive threats of monopolistic giants. Even a year ago, tighter regulation or the forced breakup of the FANG companies was unthinkable. It no longer is.

Which one is most vulnerable to break up? Based on the headlines, you would have to assume Amazon is in the hottest of the hot seats because of its sheer size, endless lunges into new markets and control of data.

Amazon is by far the world's largest online retailer, covering 44 per cent of the U.S. market, and it's the third-largest streaming media company and the top cloud-computing provider, whose customers include the U.S. Central Intelligence Agency. It sells millions of products and used last year's purchase of Whole Foods to burst into the grocery scene.

It either is, or will soon be, the United States' biggest seller of clothing, overtaking Macy's. It owns a media studio, a payment service, one of the world's biggest logistics networks and produces a range of electronics, including the Kindle e-book reader and Alexa, the voiceactivated personal assistant. In the third quarter alone, its sales were $43.7-billion and total e-commerce sales could come close to $200-billion in 2017.

It is easy to love Amazon if you are customer, a shareholder or the sort of capitalist who believes in investing for the future instead of skimming off profit for the present. Unlike most big U.S. companies, Amazon neither pays a dividend nor drains its cash horde to buy back shares (its last buyback came in 2012). It actually doesn't make a lot of profit. Instead, it's obsessed with growth and devotes all its resources to it. "Your margin in my opportunity," Mr. Bezos once said, implying that Amazon's growth is theoretically unlimited, and it is (you can buy a Fiat car on Amazon's Italian site).

The anti-trust case against Amazon is not immediately clear. In recent decades, U.S. regulators have been more concerned with price than market power, and it is hard to accuse Amazon of price gouging. So far, it has used its market clout to drive prices down, though that could change as the competition in its various market categories dwindles. So far, anti-trust regulators seem to be taking the view that Big Tech should not be punished for its success, that capitalism exists to reward the victor and punish the losers.

The problem with the current anti-trust approach is that it ignores the value of competition as a source of innovation that can benefit the markets, employment and society as a whole. There was a time when companies were broken up because they simply got too big (AT&T in the 1980s), giving them unassailable positions, not necessarily that they were ripping off customers.

Has Amazon reached the point where it is an unassailable competition killer? That's hard to say, but there is no doubt that it has developed a fearsome global platform backed by vast amounts of customer and supplier data. It would take a brave company supported by the wealthiest investors to take it on and that seems highly unlikely to happen.

There is a reason that Amazon's market value might surpass Apple's in the not-too-distant future. Investors think it is becoming essentially immune to competition in the e-commerce space.

Under Mr. Bezos, Amazon operates as a shark does; incapable of stopping, forever moving forward. As Amazon, expands into new markets - cloud computing and groceries today, who knows what tomorrow - competition is bound to suffer.

The philosophy underpinning U.S. anti-trust law is highly favourable to Amazon. As Amazon expands relentlessly, this philosophy will have to change. It might be time to break up Amazon.

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