“This antitrust thing will blow over.”
Bill Gates (Speech to Intel executives, 1995)
Last September, we outlined our views about the regulatory threats facing the big tech companies in our investment insight Regulation, Politics and Big Tech. Since then, the situation has evolved. Multiple lawsuits have been filed yet share prices have increased.
Given the political, social and economic importance of the major platforms due to their enormous scale in search, social media, e-commerce, cloud computing and other areas of the digital economy, we have updated our analysis and perspectives. The issues include potential abuse of market position, anti-competitive behaviour, violation of data protection and privacy, impact on public discourse and freedom of speech, protection of minors and other vulnerable populations, and politically and socially unacceptable tax avoidance and arbitrage. These are all serious issues for the companies that we have to confront as investors as well.
The technology sector is fast moving with many new technologies and companies appearing. Recent progress has been rapid in areas such as quantum computing, blockchain and crypto, as well as distributed cloud and adaptive machine learning technology. Such rapid progress is a challenge for regulators who are finding it extraordinarily difficult to keep up. The laws that are enacted, such as Section 230, then become out of date and are not fit for the current environment. We think this challenge is only set to increase and that a better solution would be to put the burden on the big tech companies by making them self-regulate. There should be greater incentives for big tech companies to work together as a community to create new standards, for example on Section 230, and to be proactive rather than reactive. Building on our insight last year, we would like to offer our perspective on some of the most important issues.
Alphabet: The reality of lawsuits, costs and settlements
Alfred Hitchcock said “There is no terror in the bang, only in the anticipation of it”. Markets fear uncertainty. Alphabet took the brunt: by the end of last year, the company had been served with no less than three claims. The first was filed by the Department of Justice (DOJ) in October, while the other two were filed by different groups of State Attorney Generals (AG) in December. Yet Alphabet’s share price has increased by some 40% from the last of those lawsuits to the end of April, adding over USD 400 billion to its equity market cap.
Concerns about ‘regulation’ held investors in thrall and the threat of lawsuits and regulatory action has been an overhang on the company and its share price. However, once the lawsuits were filed the suspense was lifted, markets gained perspective and investors realized that the outcome was not likely to be as bad as feared.