Tech giants' free pass means they haven't innovated in years


About 10 years ago, I was upgraded on a flight to China. For the first and only time in my life, I turned left and headed into business class.

What struck me wasn't how much more luxurious life was here, among the one per cent. Sure, there was champagne and a wider choice of films, but these days Morrisons does champagne, and you can get any film you want online.

No. The real benefit of business class was that life suddenly became easier. The bumps and hitches of travelling were replaced with speed and smoothness. It was like driving down a road where all the lights turned green.

What's more, this ease came for free. When I arrived in Beijing, refreshed after my night's sleep, no-one said: "Well, it's okay for him, he flew business class." They simply assumed I was always like that. As, after a while, did I.

It was a brief glimpse into a world of (even more) privilege, in which you got all the benefits of money, without any discernible downside.

When you always sit in business class, life gets easier
Image: When you always sit in business class, life gets easier

Which brings us to the tech giants.

For years, politicians and regulators have given companies such as Google and Facebook special treatment, working actively to help them expand.

Partly, this was due to the idea that these companies were "startups", with different values to "regular" multinational corporations. But above all, it was because the Silicon Valley firms were thought to possess a special power. Unlike ordinary companies, it was believed, they were innovative.

In fact, they were mostly just rich.

Take Google, commonly hailed as one of the most innovative companies of the last thirty years, thanks to its dazzling portfolio of novel products.

Almost without exception, these innovations weren't developed by Google or its umbrella corporation Alphabet. They were created by smaller companies, which Google and Alphabet bought.

Between 2005 and 2007, Google spent $4.8bn acquiring mobile operating system Android, video website YouTube and online ad network Doubleclick.

These three deals gave it a dominant position in mobile, video and online advertising, turning it into the juggernaut we know today.

Silicon Valley firms were thought to possess a special power. Unlike ordinary companies, it was believed, they were innovative. In fact, they were mostly just rich.

Rowland Manthorpe

Yet, with the exception of Doubleclick, none of these deals were examined by competition regulators. Even when the Federal Trade Commission did look into Doubleclick, it waved the merger through, despite evidence that Google was already using underhand tactics to squash potential competitors (a fact later confirmed by the European Commission).

These large deals are just the tip of the iceberg.

According to estimates by Tommaso Valletti, chief economist at the European Commission's Directorate-General for Competition, since 2001 Google has acquired over 200 smaller firms, swallowing up one every 18 days in the years since 2010.

'Bullying tactics' by tech market leaders harms consumers - report

Some it turned into products: Google Maps and Google Earth, for instance. Many others just disappeared. For Google, both results are wins - either it grows its market share, or it eliminates a potential competitor.

At Facebook, Amazon and Apple it's just the same.

Far from innovating themselves, these companies have been buying innovation at a furious rate. Apple's Siri and Amazon's Alexa both started life as independent startups, as, famously, did Facebook's Instagram and WhatsApp.

For every successful acquisition, hundreds more fail. But, for a dominant company, that's not necessarily a problem.

According to a recent academic study of 35,000 pharmaceutical drug projects, at least 6.4% of all acquisitions were motivated solely by the desire to preempt future competition by killing promising projects.

Amazon's Alexa started life as an independent start-up
Image: Amazon's Alexa started life as an independent start-up

Is it the same with big tech? Anecdotal evidence suggests it is - but, as the deals are never investigated, we have almost no idea.

At the same time, the ruthless way in which big tech firms crush potential rivals has largely gone unchallenged. If even Spotify, with all its financial muscle, complains that it's being unfairly treated by Apple, imagine how smaller firms cope in the same situation. (Spoiler: they don't.)

You'd think size would bring extra scrutiny. Yet while it has in some areas - the panic about fake news and potential harm being the most obvious - in the most fundamental field of all, tech firms have had all the benefits of dominance with very few of the downsides.

Now, at long last, there are signs that attitudes are beginning to change.

Last week, Senator Elizabeth Warren proposed breaking up the tech companies, with the aim of "unwinding" previous acquisitions, including Facebook's of Instagram and Google's of Doubleclick.

This week, former Obama advisor Jason Furman released his report into digital competition in the UK, which warned that "bullying tactics by market leaders" were "limiting competition and consumer choice and innovation".

Senator Elizabeth Warren proposed breaking up the tech companies
Image: Senator Elizabeth Warren proposed breaking up the tech companies

Mr Furman stressed the need to "improve effectiveness and address underenforcement in the sector," urging the Competition and Markets Authority to do more to scrutinise mergers and acquisitions by the biggest tech companies.

Yet when we spoke on Tuesday he stopped short of commending Sen Warren's plan, saying that he thought the UK could "do better".

Sen Warren's plan has flaws in its reasoning, and would almost certainly be subject to legal challenges, so Mr Furman's hesitation is understandable. But much of his reluctance came from the idea that, as he put it, "the digital economy is creating substantial benefits".

This is true - but it has surprisingly little to do with the big tech giants. It's just that, because they're so present in our lives, it's hard to imagine anything different.

That's why it's so important to step back and see at how they've got here.

Life's so much easier when you've been flying business class the whole time.

Maybe, just this once, we should make everyone turn right.