Sad News For Big Tech


New EU regulations, US listing requirements, and internet fragmentation will harm the platforms’ business models.

Recently, Meta reported its first decline in sales due to a decline in internet advertising. Netflix, Amazon, and other companies have reduced employment. As rates rise and their growth slows, several platforms have slashed stock values this year.

These, however, are transient tendencies influenced by the world economic cycle. The greater difference is that the foundational business model of Big Tech, which depends on globalization and the network effect to generate size, is beginning to exhibit significant flaws. The capacity of platforms to traverse borders and secure market dominance is under threat from three significant political and legal changes. More so than the ups and downs of share values during a global recession, they are doing so in ways that will prove to be long-lasting and significant.

First, think about the EU regulations enacted in July that would compel communication between the biggest instant messaging systems in the world, such as Apple’s iMessage, Meta’s WhatsApp and Facebook Messenger, and maybe Google Chat and Microsoft Teams. Such “interoperability” will make it more difficult for these businesses to gain market share through the typical Big Tech land grab, which entails enticing customers to certain services and locking them in by making it difficult for them to switch their data and information to competitors.

Moving from one provider to another is simple when contact lists and other data are instantaneously transferable. Over time, this can result in a more competitive technology landscape (though privacy advocates worry it will also create more potential for data abuses since it will require a more open software paradigm which some belief could undermine security).

The converse is true in politics; it is getting more difficult for many IT businesses to cross lines. Alibaba, a major Chinese internet platform, sought a main listing on the Hong Kong stock market two weeks ago in anticipation of new US financial laws calling for more extensive monitoring of sensitive data than Beijing is ready to let. The law may lead to the delisting of 200 Chinese businesses in the US. This emphasizes how the US, Europe, and China are separating in the technological world, which is bipolar or perhaps tripolar.

The task force, which included technologists, CEOs, employees of the public sector, and providers of intelligence, urged politicians to promote digital trade between “reliable allies” (which sounds a lot like “friend-shoring”), address issues with data transfer between the US and the EU, and use the General Data Protection Regulation law (GDPR) as the basis for a common privacy policy for liberal democracies.

The case, which is unique since it concerns a modest start-up purchase rather than a merger between two industry behemoths, strikes the very heart of Big Tech’s business strategy of acquiring prospective rivals when they are still relatively small. For instance, Facebook made sure that Occulus’s promising operating system did not compete with its own by purchasing the up-and-coming VR company before Meta 2014 took place. Those firms’ purchases prevented Instagram and WhatsApp from becoming social network rivals.

Meta is not alone here. Many startups have claimed that Amazon has purchased their technology to introduce rival offerings. Additionally, Google has acquired hundreds of potential rivals. But if the present case—which will go over time—is successful, it will fundamentally alter Big Tech’s strategy of suffocating up-and-coming rivals.

The network effect that has helped the largest firms become so large and concentrated would be undermined due to all of this. It may even make platforms split apart possible. Depending on the location, it will take time for the process to unfold. It may do so in various ways. These obstacles to the Big Tech business model, however, are actual. Investors need to pay attention.