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Abu Dhabi, UAESaturday 23 June 2018

From Amazon to Google: Why we need to pay attention to these tech giants

Amazon, Apple, Facebook, Google and Microsoft: these tech behemoths are 'more like governments' than companies

Amazon is a server kingmaker. AFP
Amazon is a server kingmaker. AFP

A few days ago, Microsoft bought software- development platform GitHub for the colossal sum of US$7.5 billion (Dh27.55bn). While the 28 million programmers who use GitHub may have spent the week worrying about how this move might affect them, the impact on the average person was non-existent – just another shimmy in the ever-moving world of business.

But the purchase represents another consolidation of power for the companies sometimes described as “The Frightful Five”: Amazon, Apple, Facebook, Google and Microsoft. Their boardroom decisions may seem inconsequential as we eat our lunch or book our holidays, but the impact they have on the world of technology is having a growing effect on society.

In January, business magnate George Soros gave a speech attacking Facebook and Google for being a “menace”, and the murmured concerns about the power of the big five are getting louder. With a collective valuation of more than $3 trillion, they have been described by industry observer Farhad Manjoo as “more like governments”, and their growth has certainly been unhindered by the US government. American regulations tend to be soft on monopolistic behaviour, as long as consumers aren’t being exploited – and consumers seem, in general, perfectly happy with the size and power of these firms if services are delivered quickly and cheaply.

Bought by the competition

“On balance,” writes Katherine Davidson of asset management company Schroders, “we are comfortable that – for now at least – these companies are contributing more to society in the form of free products and innovation than they are detracting by monopolising our data and crimping competition.” Governments across the world are, however, starting to take the expansion more seriously. Last week, US Treasury Secretary Steve Mnuchin weighed in, suggesting that the US Justice Department might examine the situation. “As these technology companies have a greater and greater impact on the economy,” he says, “I think that you have to look at the power they have.”

While the practice of using financial and legal muscle to buy up or sabotage smaller competitors is hardly new, the tech industry has traditionally been one where big ideas bloom from small beginnings. Indeed, the big five themselves grew from bedroom businesses into corporate giants. But that organic growth would seem to be a thing of the past, according to Ben Werdmuller, director of investments at Silicon Valley firm Matter. “If you are not independently wealthy,” he says, “you have to get serious investment to do anything. And if investors become fearful, it narrows the gene pool of ideas.”

Investors are increasingly scared of backing start-ups that find themselves in the “killzone”, where they become neutralised or destroyed by one of the big five. Those fears are well founded: aside from the headline-grabbing acquisitions such as Google buying YouTube, Microsoft buying GitHub or Facebook buying Instagram, dozens more firms are swallowed up every year. The big five collectively spent $31.6bn on buyouts last year alone. Admittedly, some entrepreneurs now see it as their goal to be acquired, but Werdmuller sees this as a lack of imagination. “If you’re building something cynically to be an acquisition target,” he says, “it probably doesn’t have the qualities that make a service valuable to begin with.”

Rebuff the advances of a big firm, however, and it’s possible that they will edge out your product by aggressively launching a competitor. After turning down a bid by Facebook in 2013, messaging application Snapchat had many of its features used in a Facebook element called Stories; its stock subsequently fell and its outlook deteriorated.

Money, rather than ideas, is now king

Back in the day, it may have been possible for smaller firms to quietly carve out a niche without gaining the attention of the tech giants, but today those firms have no choice but to use the services of the big five to be able to function. Apps are made available via Google’s and Apple’s app stores; Google and Facebook are the effective rulers of online advertising, while Amazon, Microsoft and Google run the servers that power most services. The resulting data can be used to detect any potential business threat well in advance. As the co-founder of Yelp, Jeremy Stoppelman, recently told US news network CBS: “If you provide great content in [a category] lucrative to Google, and it’s seen as potentially threatening, they will snuff you out. They will make you disappear.”

By snapping up GitHub, Microsoft will gain insight into the activities of some of the world’s best developers. That, along with information from LinkedIn (which it bought 18 months ago), will help alert them not only to technology trends, but who drives them. This, in turn, gives them the chance to recruit those people with unrefusable wage packets that start-ups simply cannot match. Money, rather than ideas, is now king. “The best ideas do not rise to the top,” Werdmuller says. “Only a very narrow set of founders are able to get their ideas heard, and because funding comes from a narrow set of investors, their fears and worries dictate what can thrive. There is no such thing as a meritocracy in Silicon Valley.”

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Werdmuller hopes to continue challenging this situation at Matter, where assistance is given to start-ups looking to create a more “informed, inclusive and empathetic” society. But fighting corporate behemoths isn’t easy. There are a few notable cases of successful companies who have managed to avoid acquisition over the years – Airbnb, Uber and Pinterest among them – but there’s a reason these billion-dollar businesses are known as “unicorns”: because they merit a near-mythical status.

It’s not impossible, however, that the might of the big five might one day be challenged by a small firm, according to Werdmuller. “I guarantee that they will eventually be blindsided by a technological development,” he says. “People say that Google can catch up with any product, but institutionally they cannot. And a new set of companies is emerging that is more concerned about people.”

Whether those companies are sufficiently resilient and strong-willed to avoid being assimilated by The Frightful Five is another matter, but if they can, tech culture may begin to change. “We might even get to a point,” Werdmuller concludes, “where Silicon Valley itself is no longer the centre of most technology innovation.”