The record-breaking antitrust fine of €4.3bn ($5.1bn) recently imposed by the EU on Google shows how much the regulatory climate has changed for the big digital platforms – from an attitude of not wanting to get in the way of the innovation and consumer benefits that digital start-ups could bring, to one of feeling that the big four "GAFA" giants (Google, Apple, Facebook, and Amazon) have become far too powerful, with fingers in many pies (see Figure 1), and far too irresponsible with what happens on their platforms.
Figure 1. Involvement of GAFA giants in core consumer TMT sectors
US regulators have not become as overtly hostile as their European counterparts, but their mood is also changing. The Trump administration is backpedaling on net neutrality, and has gone to court to stop the AT&T and Time Warner merger. Such a government-led antitrust lawsuit has not been seen for decades in the US, and could be a sign of things to come for Silicon Valley. Certainly, in some US states, local attorney generals have launched antitrust probes into Google.
At the same time, some of the US legislators who pioneered the limited-liability privileges that allowed Facebook and YouTube to grow unencumbered are now talking about the need for controls. In Europe, the European Commission is determined to push forward with plans to introduce a new copyright directive that would strip away most of these privileges, despite the voting down of the directive's current wording by the European Parliament recently.
The latest Google fine – which follows another multibillion fine imposed on the search giant by the EU last year – is aimed at stopping the practice by which makers of Google-certified Android devices are forced to preinstall Google's apps and refrain from creating their own Android "forks." This practice has helped turn Google into the mobile powerhouse it is today.
Facebook has yet to face such hefty fines. UK regulators fined it around £500,000 recently for the Cambridge Analytica scandal – a drop in the ocean next to the social giant's annual revenues. But it suffered far greater financial damage when it saw 20% of its market value – about $130bn – wiped out following its 2Q earnings call, during which CEO Mark Zuckerberg warned that the billions of dollars that Facebook is now spending to address data privacy concerns "will significantly impact profitability."
However, recent regulatory moves, as well as those on the immediate horizon, are far from apocalyptic for the GAFA giants. Here is why:
Even if Google redraws its contracts with device makers, the latter are unlikely to take up their newfound freedoms. Few are going to want to dispense with the treasure trove of apps that is Google Play. And most other Google services, such as search, maps, and Chrome, have so much traction that leaving them out would only risk upsetting consumers.
At the same time, the history of Android forks is littered with failures – not least, Amazon's. Forked Android devices branch away from the mainstream of Android developers, and from the wealth of software updates, SDKs, and APIs that Google rolls out for its mobile ecosystem.
Facebook has already seen which way the wind is blowing and has increased its payroll and invested in technology to tighten data privacy and police content on its site. This might be eating into profits, but it anticipates the effects – and might even reduce the severity – of any upcoming regulatory backlash.
It is within the realms of possibility that regulators might come down really hard on the big platforms and order their break up – for example, make Facebook spin off Instagram and WhatsApp, and make Google spin off YouTube. But it is much more likely that any antitrust action would be limited to opening up the platforms to competitors – the way Microsoft and IBM were forced to in past antitrust cases, and Google is being forced to now by the EU. And even more certain is action that might prevent these giants from making any further acquisitions – especially those deemed to be attempts to neutralize competitive threats.
Network effects make digital a winner-takes-all type of market. Even if large social or advertising networks are broken up, new dominant networks would rise from the remnants. The big platforms should fear further antitrust moves, but the realities of the market also limit regulators' options.
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