Unlock the Editor’s Digest for free
Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.
Only six companies trade above trillion-dollar valuations. Five are US tech companies. Global regulators cast these tech giants as modern-day versions of railroad and oil monopolies. Multiple antitrust cases have been filed. Even ahead of rulings, scrutiny is changing the way Big Tech operates.
In the US, the Department of Justice has filed two antitrust lawsuits against Google, one focusing on search, the other on digital advertising. It may soon file a case against Apple. The Federal Trade Commission accused Meta of suppressing social media competition by buying WhatsApp and Instagram and alleges that Amazon’s online retail store is an illegal monopoly.
Regulators worry that companies such as Apple, Microsoft, Alphabet, Amazon and Nvidia freeze out competitors. Between them, they dominate markets such as ecommerce, artificial intelligence chips and digital advertising. Combined, they sit on almost half a trillion dollars of cash and marketable securities.
Using that money to expand via acquisitions is now more difficult. Big deals are perhaps off limits. Last year, US tech M&A deals fell 46 per cent on the previous year to a decade low, according to data from PitchBook.
Dealmaking in other sectors is expected to recover this year. In tech, the outlook is gloomier. At the end of last year, Adobe abandoned its planned $20bn Figma acquisition following UK and EU regulator opposition. Such megadeals are likely to remain off the table in 2024.
It isn’t just big-ticket buys that are challenging. Next month, the EU could vote to block Amazon’s $1.7bn iRobot deal. Note too how quickly regulators are moving on AI, a nascent industry full of start-ups with little revenue and no profits.
Competition regulators in the US, UK and Europe are all considering whether Microsoft’s $13bn investment in OpenAI warrants scrutiny. That could scupper Microsoft’s lead in AI and limit gains made by its AI-focused intelligent cloud business, where operating income rose 31 per cent in the last quarter. It could stymie future AI deals — or indeed moves in other emerging areas of technology.
The ultimate trustbusting sanction — a forced break-up — is unlikely. Rulings can be appealed. Microsoft was ordered to break up in 2000 until a higher court overturned the decision.
But the case against Google Search, which could produce a decision this year, threatens to reduce the audience for a service that drives 57 per cent of the company’s revenue. If Google cannot pay device owners to be the default search engine it will also eliminate payments to Apple that equal one-quarter of that company’s services revenue.
More fines and higher compliance costs are coming too. Failure to comply with the EU’s Digital Markets Act, which comes into full effect in March, could mean penalties of up to 10 per cent of global revenue. For Google’s parent, Alphabet, for example, this would be equal to almost $30bn.
Antitrust fights are a laborious process that can tie up companies for years. Even without the most drastic penalties, regulators can — and already are — restricting growth.
