Does Big Tech Need More Regulation? | 7investing
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Does Big Tech Need More Regulation?

June 22, 2021

The United States Congress has a number of plans under consideration to regulate big technology. The actual legislation may not make much sense but it’s possible that something will pass because there’s bipartisan support for reigning in the influence of these companies albeit for very different reasons on each side of the aisle.

Regulation could cause some unintended consequences and the impact could affect innovation and stifle many startups. Anirban Mahanti joined the June 18 7investing Now to break down what this potential regulation means and what its implementation might look like.

A full transcript follows the video.

 

Dan Kline: We are going to segue into a segment that was originally going to be done with Matt Cochrane. But Matt is busy with some outside things. And we’ll have him of course on next week’s program. So Anirban is going to step in and talk about this. We had a very spirited discussion in our Slack about regulation and big tech, I actually suggested that maybe we should turn it into content.

So we’re going to do that right now a little bit with Anirban. There are five separate bills in the US House and I would call these bills a little bit muddled, but there’s clearly a real intent to consider regulating big technology. Some of that is political. Some of that is privacy. Some of it is well intentioned, some of it less so but let’s ask the big question Anirban, do you think big tech needs more regulation is is this actually something that should be talked about?

Anirban Mahanti: You know, I’m not a proponent of big tech regulation, largely because I think one of the things that’s lost in the debate is how technology works. Technology is not necessarily like an oil company. Right. And I think what most of regulation tries, it tends to do, is attempt to stop growing power in the current setup. Right. But disruption typically happens in technology quite frequently. And what it usually means is that somebody is going to come in with something different. It’s not a better mousetrap, it’s just completely something different. And that basically disrupts the incumbent. And I think that’s completely lost in this attempt to regulate the power of big tech. I think that’s, that was my sort of my biggest comment.

I don’t disagree with the idea that you shouldn’t have this thing called self prefacing, like, if Apple (NASDAQ: AAPL), for example, has Apple Music, putting that, sort of pushing that above other other competitors. Maybe it’s wrong, right. But at the same time, my argument always has been that, look, if you’re going to be a music delivery, streaming service, that is pretty much a commodity, right? I mean, you really are fighting over a commodity service. You know, you can say Apple shouldn’t compete, but maybe then, you have to compete with Google (NASDAQ: GOOGL), you have to compete with Amazon (NASDAQ: AMZN), you’ve competed with anybody else is going to do another commodity service. Right? commodity services have no moat. So. I mean, I agree with that.

I think privacy is important, because but I, again, there too, I think that there are so many nuances that are important in terms of what do you mean, by privacy? What has happened? So the greatest example of privacy is that there’s a European regulation on privacy, what that has actually done is it has made it easier for big tech to comply, because there is overhead for complying with privacy regulations. Right. So the privacy regulations are essentially unable to be taken, actually disabled. Competition doesn’t have the capability to actually do these do the various crazy things that are required by the law? So that’s my general take. Right. But I do agree with some of these, I think the overarching question, should we are consumers being harmed? And right now, I think the harm level to consumers is very little, I think, the the issues could be around fake news. And I guess how AI plays a role in news dissemination and what people see and so on, so forth. But, those are also evolving questions, right. But I,  consumers are not being harmed.

Dan Kline: And the self-preferencing question can be tricky. So I would argue that there’s only a couple of players in streaming music. So it doesn’t really matter if in the App Store, Apple is first and Spotify (NYSE: SPOT) is second that I don’t see there’s a massive gain there. Where self preferencing gets tricky, is really Google. Because when you look at Google, and you say, okay, you know, Anirban and I had a long discussion on Crowded House a couple of shows ago, a band, and let’s say I wanted to share “Something so Strong” one of their big hits with Anirban and I searched it on Google, the best result is almost certainly going to be YouTube, it would be very strange, if what it gave me is like a fan-shot video on somebody’s page. So the reality is, a lot of cases that are self preferencing are bigger questions of whether Google should be able to own YouTube. And clearly, it’s been good for YouTube to be owned by Google, and look do I think Facebook (NASDAQ: FB) hasn’t really done a good job with getting rid of fake news with getting rid of misleading headlines or posts. But clearly, they’ve done a lot better and a lot more.

Now, are they labeling harmless things with COVID warnings? Yes, they are like you. It’s very much like the, you know, the software designed to keep your kids away from from racy sites stops you from making your doctor’s appointment, because there’s words or colors or images, so it’s not perfect, but Anirban one more question, and anyone else can weigh on this as well. Do you think regulation will actually bring more harm to consumers than solve problems?

Anirban Mahanti: Oh, that’s a that’s a tricky one. I mean, um, so I think the one thing that I think has potential trouble actually brewing is around acquisitions. Right. And, so I think the regulation or the regulations, one of the bills that has been put out basically says, Well, we’re going to, you should stop big tech from acquiring companies, because that’s stopping competition. But I think the problem with that is, is actually it can have a reverse impact, because one of the legitimate ways of creating wealth is acquisition, right?

Somebody might build YouTube thinking, I want to be acquired, if you stop them from being acquired by the legitimate players, then they have no acquisition outlet. Or you could be Fitbit (NYSE: FIT). And you basically need an acquisition to survive and have people employed and for the Fitbit journey to continue, well, then an acquisition is a problem. People look at the end result and say, well look at Instagram, how big it is, what people forget is there is another world where Instagram could have been its own platform and have been maybe half as successful. Right. So I think that’s the way I think the harm could be in innovation, the innovation that we currently get to experience but actually degraded.

Dan Kline: There are 1000’s of companies that you’ve never heard of that have been snapped up by these big players. Sometimes it’s as simple as they do one thing right that somebody wants to own and integrate their team and people get a payday and a really good job. And a nice story to tell, I would not want to stifle that. Simon, you want it to weigh in? And then we’ll take a question from Max Lucas.

Simon Erickson: I think Anirban nailed it. I think that’s exactly what this debate is framing up to be is who is pissed off about big tech becoming even bigger tech over time. Users, for the most part, don’t seem to be too too too upset about this, because they still want to get Gmail for free, you still want to get all the services that Google has that are billion-user products out there for free. We love our Facebook, we want to be able to keep Facebook free. So we don’t want to pay for that. But in exchange, you’ve got to give up some information for targeted advertising.

But for the most part, I would argue that it’s not the users of those sites that are up in arms about this. It’s the competitors that are not named Facebook or Google, right. This is Yelp (NYSE: YELP), throwing up its arms and yelping about how upset it was about Google Maps being the self preference for anything that was Android going to Google Maps, instead of Yelp’s for local reviews, local marketing that it was doing. It’s the, it’s the companies are saying this is anti-competitive, there’s no way we have any shot of building a business if these companies are just going to steer it to their own businesses and their own reviews and their own sites and everything else that feeds the advertising machine.

So I think it’s going to be interesting to me, I think we tend to frame this most of the time, Dan as ourselves as users, when in reality, I think a lot of the real hate of these big tech companies getting even bigger this from the competitors that just don’t think they compete against them anymore.

Dan Kline: We will check in with Tom from MySpace on a future edition of 7investing Now. And the Snapchat (NYSE: SNAP) ghost, we are just bringing up all sorts of potential guests. I wanted to share a comment from Max Lucas and get Anirban’s thoughts on it? Because I actually think this is a bigger issue. “Should there not be a real concern from US regulators that we need to look at the global marketplace when trying to judge tech monopolies?” The challenge here is we don’t have like a global organization that could regulate these things. But Anirban as a shareholder, there is some risk here.

Anirban Mahanti: Yeah. So I think what’s happening is so is an interesting use case from Australia. The Australian government passed a regulation that basically said that, Facebook and Google now need to actually make a deal in with the news publishing houses, in terms of  whether or not the news is going to be shown and who’s going to get the money for it and things like that. I think, my own view is that I think it’s, it’s, again, as exactly what Simon said, right? It’s about whether the users are already getting what they wanted to. Here the issue was the news media, the publication houses actually want to make money. And they figured that this is one way to make money is by basically getting these guys to pay for it. Right. So now, again, it’s not about the consumer, so are the competitive landscape.

So there’s no global body? Right? And there’s, I think, my view is that there is an underlying feeling, whether it’s Europe and Australia, or wherever else that big tech is basic, when you say big tech, and basically means US big tech, and they basically own so much of the tech landscape. There’s history behind it, because of the internet coming from the US and things like that. And that has, the Silicon Valley being in the US, but that is what it is. And I think the solution for that is to compete, not to regulate, I’m always a believer that you can compete and competition actually, ultimately provide better products. And as I said, I think if anybody who understands disruption in technology will say that, you let the competition play out, and MySpace got killed, and Facebook came, right. So there’s always something, and Shopify (NYSE: SHOP) today exists, despite the fact that there are so many other players in the e-commerce space, right?

So it does not, if you have an innovative product, you can still win. And I think, Shopify is a great example, as a Canadian company that has, made and made a space for itself. So I think, again, there’s, I think global, there’s gonna be I think global regulation is gonna cause issues, which is gonna make it complicated, which is going to again, I think, how big tech because they’re gonna be the ones who are going to be able to actually manage the regulation.