Once the plucky startup underdogs, the likes of Alphabet Inc. (GOOGL, Financial) (GOOG, Financial) and Amazon.com Inc. (AMZN, Financial) have become dominant economic players, boasting massive profits and tremendous market power.
Big tech is big business, and its growing power has caused increasing public unease. Political leaders have started sounding the alarm. While not long ago relegated to the political fringe, more and more leaders and public figures are calling for a coordinated public response to the rising market power and anti-competitive practices of the largest tech companies. Indeed, an alarming number of influential people are actually talking about a remedy that would have been considered unthinkable just a few years ago: breaking up the tech giants.
Despite the mounting rhetoric, investors and markets seem largely unfazed by the calls for big tech to get the trust-busting treatment of the early-to-mid-20th century. They should be paying closer attention.
Waking up the regulators
Investors in big tech stocks may not lose much sleep over the prospect of government intervention for now, but it is a risk they should keep in mind. The antitrust regime in the U.S. has been rather moribund for many years, but signs of life are starting to show. Indeed, it was not that long ago that the U.S. government fought Microsoft Corp. (MSFT, Financial).
In the 1990s, Microsoft was by far the dominant tech giant, but when it attempted to seize a dominant position in web browsing as well as computer operating systems, federal regulators took action.
The eventual settlement left Microsoft intact, but also largely excluded from the burgeoning search engine and social media ecosystems. The settlement also marked one of the last times the federal government would take aggressive proactive action toward a tech company. That may change ere long.
Trust-busting redux
Senator Elizabeth Warren, a top-tier presidential candidate for the Democratic nomination in 2020, has called for similar remedies to be applied to the likes of Amazon and Facebook Inc. (FB, Financial), in addition to far more aggressive interventionist action:
“My administration will make big, structural changes to the tech sector to promote more competition”Š-- including breaking up Amazon, Facebook and Google.”
Senator Bernie Sanders, another leading presidential candidate of the political left, has also signaled his openness to breaking up big tech companies that might be harming competition and smaller enterprises.
While the candidates who have made breaking up big tech a talking point in their presidential campaigns are not favored to win this time, they are putting the idea into the public sphere and giving it credibility. These would-be trust-busters are serious political players, not cranks, and their advocacy makes the issue mainstream.
Crazy ideas get serious
Those who doubt this possibility should consider the debate over universal health care. Over the course of two presidential election cycles, it transitioned from a politically toxic proposition peddled by cranks into a mainstream policy proposal championed by a victorious candidate.
The debate over breaking up tech companies could well become very serious, very fast. Of course, it will not happen overnight, but the changing zeitgeist could mean real trouble for the vast -- and highly valued -- tech companies at the fore of today’s economy.
The darkening mood toward tech companies today should not be taken lightly.
Verdict
Many of the biggest companies of the 20th century fell before the power of legislation and regulation. The decades of hands-off competition policy that have allowed these giants to flourish are not guaranteed to continue.
Still, government action to break up tech companies would mark a major shift in attitude. It is far from fated to happen. Indeed, the smart money is on the antitrust rhetoric simply fizzling out, as happened when politicians took aim at Microsoft in the 1990s. However, stranger things have happened. Black swans -- catastrophic low-probability events -- do happen. And when they do, it does not turn out well for the ill prepared.
More likely, however, is a compression of tech valuations in response to perceptions that intervention is possible (or probable). If that concern is eventually baked into tech stock prices, it could well cause a downward revaluation, even if the risk is perceived to be small.
Disclosure: No positions.
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