Weekly Wrap #13: Regulators and World Firsts

Welcome to our Weekly Wrap, where we cut through the noise to bring you our favourite insights from the technology and startup world.

Please keep the great feedback coming. If you love the Weekly Wrap, share away.

Share


Regulating geeks off the street

Big news in Big Tech this week: the US Congress managed to make some of the world’s most powerful people—the chief executives of Amazon, Apple, Alphabet (Google) and Facebook (Bezos, Cook, Pichai and Zuckerberg)—shake in their boots.

Why so serious? An increasing pool of politicians consider that Big Tech is too big, too powerful, and too much of a monopoly, and therefore, needs to be broken up and/or regulated like the energy, water, telco and financial industries.

Like we said last week, data is the new oil.

On Wednesday, Congress called in the chief executives to front for an antitrust (a.k.a. anti-competition) hearing via video conference. Somewhat ironically, Congress’ platform of choice was Cisco WebEx - a competitor to Google Meet.

An entertaining article in The Guardian yesterday summarised Congress’ broad argument:

[Alphabet] and Facebook run an advertising duopoly that is annihilating publishers and journalists around the globe. Amazon operates its marketplace and also sells on it, creating irresistible incentives for bad behavior. Apple acts as an explicitly monopolistic gatekeeper for apps that want to reach its 25% of all mobile devices, which live in the pockets of a well-heeled and desirable demographic.

Props to Congress who have significantly improved their knowledge of Big Tech business models and operations since this embarrassingly hilarious exchange two years ago when a Senator asked Zuckerberg about “emailing within WhatsApp”:

Of course, in response the Big Tech execs highlighted that competition exists, downplayed their market position and deployed selective memory tactics when it came to incriminating evidence.

Tim Cook (a.k.a. Tim Apple), for instance, suggested that developers who don’t like the Apple App Store terms (which demand 30% of any sales from in-app purchases on Apple devices) can sell their apps in other places, like Xbox. Now why didn’t new email app Hey think of that solution instead of causing a ruckus with Apple?!

In fact, if there’s one lesson any aspiring monopolies can learn from these hearings it’s this… Don’t ever put anti-competitive rationale/stupid stuff in writing.

Congress presented Bezos with an email where he spoke about pursuing small publishers “the way a cheetah would pursue a sickly gazelle”.

Similarly, Zuckerberg’s 2012 emails on his strategy to acquire Instagram read:

One way of looking at this is that what we’re really buying is time… buying Instagram, Path, Foursquare, etc now will give us a year or more to integrate their dynamics before anyone can get close to their scale again. Within that time, if we incorporate the social mechanics they were using, those new products won’t get much traction since we’ll already have their mechanics deployed at scale.

Meanwhile, record high Q2 revenues aren’t doing much to help Big Tech’s “I’m not a monopoly” plea:

  • Apple reported revenue of US$59.7 billion, up 11% from a year ago. 

  • Alphabet reported similar levels to 2019 - US$38.3 billion.

  • Amazon had a killer quarter with revenue of US$88.9 billion, up from US$63.4 billion last year.

  • Facebook reported US$18.7 billion in revenue, up 11% from a year ago.

There’s no denying Big Tech have worked hard and smart to get where they are. They’ve used brilliant strategies, including aggressive or ‘dirty’ growth and acquisition tactics in order to achieve their market leading positions.

Because that’s what capitalism encourages.

You don’t become a trillion dollar company by passively watching the competition snap up your market.


Australia’s novel stance: Make ‘em pay

In a world first here in Australia, the ACCC (the competition regulator) yesterday released a draft mandatory media bargaining code commissioned by the treasurer, Josh Frydenberg.

Under the code, it’s proposed that specific companies (at this stage just Google and Facebook) must negotiate in good faith to pay news media for use of their content. Media companies can negotiate as a group with Facebook and Google.

Frydenberg explained:

We want Google and Facebook to continue to provide these services to the Australia community … but we want it to be on our terms. We want it to be in accordance with our law and we want it to be fair.

This comes as results show Facebook and Google generated $350 million more in Australian advertising revenue than all major domestic media companies combined last year.


Our unsolicited opinion

When you look at the facts and arguments presented, it’s hard not to conclude that these companies currently hold unparalleled market power and, to varying degrees, exploit that position.

But what’s the remedy?

The biggest problem is anti-competition laws are outdated. They aren’t designed for our new digital world, where power is created by controlling demand (own the audience, control the ad money), rather than having a monopoly over supply.

Fines and lawsuits have limited impact on trillion dollar companies. They also aren’t a complete solution. For instance, Australia’s novel media code revenue sharing proposal leaves us asking, why should media companies be the only ones to be paid by Facebook and Google?

Existing measures that try and increase competition like structural separation are too simplistic and don’t address underlying policy concerns either.

For example, breaking up Facebook and Instagram might help reduce the costs of ads for a period, but to what end? For startups, the barriers to entry don’t really change. For consumers, there’s no guarantee of lower prices, better services or outcomes like improved data protection.

There are other policy considerations at play too - like national security. At the same time that Congress is questioning Big Tech, Trump’s administration is considering banning their biggest new competitor, Chinese-owned TikTok.

Finally, by the very nature of the Internet, tech companies are global. Yet regulation is local, based on policies developed by people with their own ideologies. The introduction of Australia’s media code is an example of exactly this.

As Benedict Evans explains in his thorough essay:

For its first 25 years, the consumer internet has operated by default on US ideas of free speech, regulation, privacy law (or the absence of it) and competition, partly because that’s where most of the internet came from and partly because the internet wasn’t really important enough for clashes of these cultures to move from irritation to legislation. That’s clearly changed, and we’re moving to a world of multiple, overlapping regulatory spheres…

What happens when the UK says you must do X and Germany says you must not? 

We aren’t raising these points because we don’t think regulation should occur. Some regulation of Big Tech is appropriate considering their market power. But the regulatory solution is complex, and certainly not one-size-fits-all.

In an ideal world:

  1. Law makers would understand the tech world, each of the Big Tech business models and carefully think through the broader policy objectives and implications of any regulation - aiming to protect consumers, encourage innovation and increase competition.

  2. There would be some form of regulatory consensus across (Western) countries.

Are we dreaming?


Pyning after experienced founders

An Australian capital raise that piqued our interest this week was a US$2.2m Seed investment in HRTech startup Pyn. Here’s why:

  1. Startup alumni
    Pyn is co-founded by one of the co-founders of Culture Amp (Jon Williams) and the ex-Vice President of People at Atlassian and Squarespace (Joris Luijke). It’s another example of seed funding going to experienced founders, which is a trend we previously explained a few weeks ago.

  2. Top tier Silicon Valley Seed $
    The round was led by Rich Wong at Accel, who also led a US$60 million Series A round in Atlassian 10 years ago. Wong is joining the Pyn board. 

    Accel was a prolific investor in Australasia before big local funds emerged, investing in Invoice2go, 99 Designs, Xero, OzForex, CampaignMonitor.

  3. Ecosystem starting to reinvest
    Skip Capital (Kim Jackson and Atlassian co-founder Scott Farquhar’s fund) also invested, showing that the Australian ecosystem is maturing as billionaire Atlassian founders invest in the next generations of startups and their own alum.


That’s a wrap! We hope you enjoyed it.

The team at Ignition Lane

www.ignitionlane.com

p.s. we love feedback - if you have any or want to continue the conversation, please reach out.

p.p.s. Watch Gavin live on AusBiz at 2pm on Mondays, when he opens the Startup Hour of Power.