In an age when Washington DC politicians can agree on next to nothing, it’s ironic that the one issue they all agree on is attacking the very companies that generate the most benefits: the Big Tech. following Legal scholar and technology critic Lina Khan appointed by President Biden as President of the Federal Trade Commission (FTC) in March 2021, Biden signed an executive order on July 9 Urging the FTC to establish rules on the use by large platforms of monitoring and collecting user data and to create rules “prohibiting unfair competition methods” that could harm small businesses. This follows congressional hearings last August in which Democrats and Republicans stacked attack after attack on Big Tech’s four CEOs.
The advantages of digital giants
CNBC commentator Jim Cramer has spoken for a lot July 8 when he “kindly and politely asked politicians around the world to stop doing more harm than good, maybe support the businesses that work and stop attacking them; maybe stop shaking the winners and go after the bad actors instead. ”
It’s sometimes hard to remember, amid the bipartisan venom now directed at Big Tech, that these companies got big precisely because they gave us all benefits. In just two decades, digital businesses have enabled us to work, communicate, travel, shop, play and watch games, get healthcare and education, raise our children, to have fun, read, listen to music, watch theater and movies, worship, in short, live. The former corporate giants IBM or GE fell short of the digital giants and are in decline precisely because they failed to deliver such benefits, despite using the same digital technology. (See Figure 1)
The digital giants have grown up because they are managed differently
The digital giants have won in the market not only through digital technology, but also by creating value in different ways. Instead of an industrial age focus on efficiency and internal results, digital’s primary concern is external: an obsession with creating value and results for customers and users. Instead of starting from what the business could produce that could be sold to customers, digital businesses work backwards from what customers needed and then saw how it could be delivered in a sustainable way. Instead of leadership located only at the top, leadership that creates new value is encouraged throughout the organization. Instead of tight control over individuals reporting to bosses, self-organizing teams across the organization create value by drawing on their own talents and imaginations. Instead of the steep hierarchies of authority of industrial-age companies, digital companies tend to organize themselves into horizontal networks of skills. In this way, the central management concepts of the industrial age were overturned.
Companies which were run industrially like IBM or which practiced the “theater of innovation” like GE were not up to the digital giants. It was like a fight between knives and automatic rifles. When companies use the new ways to create value, they can scale faster, operate more efficiently, mobilize more resources, attract more talent and use it more efficiently, gain customers more easily, take advantage of higher market capitalizations. and have sufficient resources to protect their earnings by putting pressure on regulators. Network effects allow digital winners to continue to grow, while once-dominant industrial-age companies continue to falter. If public and private sector organizations do not abandon industrial-age management practices, they risk losing their relevance or disappearing altogether.
Greatness is inherent in the digital age
We are living in a new economic era, the digital age, and the digital giants are the emblem of it. They reflect the immense benefits and revenues that digital can generate, in the exponential growth that digital allows and in the competitive threat they represent for traditionally managed businesses.
Greatness is inherent in the digital economy. “In markets with highly scalable assets,” write Haskell and Westlake in Capitalism without capital, (Princeton, 2017) “The rewards for finalists are often meager. If Google’s search algorithm is the best and is almost infinitely scalable, why use Yahoo’s? Win-win scenarios will likely be the norm. Dividing Google into ten little Google’s, forcing users to go to another little Google for different kinds of searches, would destroy much of Google’s ease and convenience.
Lina Kahn’s Yale Law Review Article
New FTC President Lina Khan caught public attention with her 2017 student article “Amazon’s antitrust paradoxIn the Yale Law Review, which accuses size of wrong and an indication that companies must have done something wrong. What these critics may miss is the digital economy’s inherent win-win trend.
Kahn’s article also tends to ignore the extent of Big Tech competition. For many purposes, Wikipedia is a more reliable source of many types of knowledge than Google. Amazon and Google compete in search. There is no final placement: the game is in progress.
Kahn’s article attacks Amazon for having a long-term innovation strategy and a willingness to forgo short-term profits for long-term returns. Such critiques are bizarre in an age when most large corporations are too short-term focused and use share buybacks to reward their shareholders and managers, to compensate for a lack of real growth or innovation, at the cost of big charge for customers. and society.
The repeal of SEC Rule 10B-18, introduced in 1982, which directly led to widespread short-termism, income inequality and personal transactions by executives is a much more urgent task than to try to size large technologies correctly. Let’s be clear: investing in innovation and value creation is good. It is the inability to innovate and the extraction of value that are bad.
The faults of big technology
Yet Big Tech is not flawless. The Wall Street Journal documented cases where Amazon reportedly used its insider knowledge gained from operating the platform to compete with its own partners in areas such as diapers, furniture, cameras and tripods.
Big Tech would be wiser to refrain from winning any disputes in the market. “Consider the alternative case of Alibaba, China’s response to Amazon as a one-stop shopping destination,” suggests business professor Julian Birkinshaw. “Unlike Amazon, Alibaba does not manufacture its own products and therefore does not compete with its own suppliers… Alibaba is deliberately missing out on some lucrative short-term opportunities to help it continue to grow in the longer term. . “
Options for large technologies
Big Tech faces two main options. They can continue to act as if nothing has happened and hope that government action will take time to become a reality. Or they can take proactive steps to regulate themselves with a renewed commitment to “act honorably” and “do no harm”. This last course of action will be the smartest and the least painful. Regulation is coming: the only question is whether the Big Four will do it for themselves or will do it themselves.
And read also:
Why big tech should regulate itself
Why companies need to shift from extracting value to creating value