The case for curbing the power of Facebook, Amazon, Google, and Apple (FANG) is well documented. The scale and scope of these businesses is virtually unprecedented, and therefore it was a matter of time that the Anti-Trust authorities went after them. Here is the short version of the Anti-Trust case: Amazon is unfair to sellers on its marketplace, Google shows preferential treatment to its own properties, while Facebook uses a dominant social media position to utilize user data in harmful ways that we don’t fully understand.
Anti-trust laws were developed over the 20th century to ensure fair competition to protect customers from predatory business practices. Therefore, the real question that should be asked is: are these businesses unfair to customers?
Let’s revisit the breakup of the AT&T business. AT&T in the 1970’s controlled every aspect of communications. It made the equipment, was miles ahead on R&D, and owned and operated the infrastructure for all local and majority of long-distance service. AT&T had aggregated the supply of telephone service into a powerful monopoly which discouraged competition and gave customers no choice. Well, one choice - AT&T. Therefore, AT&T had to be broken up into multiple companies to introduce competition and better prices/services for consumers.
Let’s consider another example – the local monopolies of cable companies. For several decades, when one moved into a condo building, the list of options for cable and internet was already narrowed to 1. It was based on who had wired the building. Neither you nor I had much of a choice. The cable company had aggregated the supply of entertainment (cable channels etc.) and gave the consumer no choice but the small list of packages. This situation goes unaddressed.
This aggregation of supply of product and services into the hands of a few providers is clearly bad for competition and for consumers. In my opinion, the case against today’s giants doesn’t hold water. The business models are different, and products are superior. As a result, most consumers love these businesses and spend a lot of time using them.
As Ben Thomson at Stratechery has written this ad-nauseam in his ‘Aggregation Theory’, the core difference between FANG and the dominant businesses of the past is who/how they are going about aggregation. In the past, the strong businesses consolidated the supply of products and services, became the sole offering, and therefore left consumers very little choice. Today, FANG has built products that have provided tremendous value and convenience to customers. In some cases, they are cheaper than the alternative. And therefore, rightfully so, they have won total consumer loyalty. Loyal customers are the real reason FANG enjoys dominant market power. They have consolidated demand – the consumer – and therefore left no choice for suppliers but to deal with FANG. As an end result, FANG is exerting its market power on its suppliers for the benefit of the consumer.
I do not have a legal background nor do I have any insight into how these proceedings will eventually work out. It could very well be that these businesses use their unprecedented power to abuse consumers. But can we punish someone based on a crime that haven’t committed? No. Until that changes, the anti-trust case against FANG is weak at best.
What do you think?
This material does not constitute an offer or solicitation to purchase an interest in Latticework Partners, LP (the "Fund"). Such an offer will only be made by means of a confidential offering memorandum and only in those jurisdictions where permitted by law. An investment in the Fund is speculative and is subject to a risk of loss, including a risk of loss of principal. There is no secondary market for interests in the Fund and none is expected to develop. No assurance can be given that the Fund will achieve its objective or that an investor will receive a return of all or part of its investment.
This material contains certain forward-looking statements and projections regarding the future performance and asset allocation of the Fund. These projections are included for illustrative purposes only, are inherently speculative as they relate to future events, and may not be realized as described. These forward-looking statements will not be updated in future.
I am an investor and these are my personal thoughts on investing, behavioral finance, markets, and sports viewed through the prism of a Latticework