Breakups (of big tech) are hard

Breaking up Big Tech is a big ask, while spinoffs might actually be more valuable than keeping them

[Note: originally posted Oct 14, 2020 on my now-defunct Substack]

Tech antitrust has been described as an overhang to big tech stocks in recent months (years?). And yet, the FANG+ index has outperformed the S&P 500 by [checks notes…] 100% over the past year.

Since the House antitrust committee released its report that said Amazon, Apple, Google, and Facebook have abused their position, the calls to breakup Big Tech have only grown.

However, there are a few problems with that narrative.

First, nobody can agree on how far to take the “break up big tech” idea. As the NYT noted…

“Our investigation leaves no doubt that there is a clear and compelling need for Congress and the antitrust enforcement agencies to take action that restores competition, improves innovation and safeguards our democracy,” Jerrold Nadler, Democrat of New York and chairman of the judiciary committee, and David Cicilline, Democrat of Rhode Island and chairman of the antitrust subcommittee, said in a joint statement.

Read Cicilline’s words closely, and there isn’t really an explicit call to break up the companies in the fashion many are calling for. Even better…

Some Republicans agreed with proposals to bolster funding for antitrust enforcement agencies, but balked at calls for Congress to intervene in restructuring the companies and their business models. Others have refused to endorse any of the Democrats’ findings.

In a split government, there’s no way they can come to an agreement on how to proceed with tech. There’s a higher risk of it happening in a unified government - the Blue Wave scenario - but even then, there’s varying appetite among Democrats on what to do with tech.

Second, let’s assume the breakups happen. What's the worst-case scenario? AWS is spun-off? YouTube becomes its own company? Is that going to hit the share prices of Amazon or Google? Do the companies really lose out on market power by not having then spun into their respective companies (probably not). Would a spinoff come at a discount or a premium (almost certainly the latter)? How many retail companies would shift their infrastructure to AWS because it's a platform no longer owned by direct competitor Amazon?

Even so, toothpaste is out of the tube on a lot of the acquisitions made in the past few years. I can't see Instagram being spun off or AdSense being pulled apart from Google.

The only problem is this whole “breakup big tech” is academic, at the moment. While there's bipartisan agreement to do something on antitrust, there's no consensus on what that looks like. Big Tech also provides a very useful and valuable scapegoat/strawman for both parties. It's great to point fingers at tech to say this is the root cause of all our problems, though any solutions don't provide any solution.

I’m not going to make an argument whether tech should or shouldn’t be broken up. But I will say that we should all be a little skeptical that anything beyond a slap in the wrist will happen. After all, that would be a move to punish some of the most beloved+ companies.

+Not to mention, big tech (excluding Facebook) dominated the list of America’s Most JUST companies.

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