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A public policy blog from AEI
Is satisfying large numbers of customers a bad thing? It would seem so. Democrats in the US Senate take it as an article of faith that large companies are bad. Many pundits fret over the successes of Amazon, Google, Facebook, and other large tech companies, arguing the companies are simply too big and powerful and must be stopped.
What these critics are missing is that happy customers create large tech companies — so an attack on successful tech companies is really an attack on their customers.
There are several people, and they seem to get a lot of media attention.
Jonathan Taplin is a prominent voice in this group. He has called for the breakup of Facebook, Alphabet (Google’s parent company), and Amazon, holding that these companies became too large by hijacking the original vision for the internet, or at least his vision.
Salon’s Angelo Young wrote in support of Taplin’s views, complaining that the combined market value of Facebook, Alphabet, and Amazon — about $1.6 trillion — is roughly the size of Canada’s gross domestic product (GDP). (He failed to mention that the US federal government annually spends more than twice Canada’s GDP.)
Elsewhere, CUNY/Queens professor Douglas Rushkoff called for the breakup of Amazon because too many people buy from its online store.
The answer is simple: Customers like them.
These companies have become masters of platform economics. Facebook and Google, for example, give consumers free use of platforms in which they enjoy finding products or information they are looking for, learning things about others, and sharing things about themselves and their businesses. Amazon continually finds ways to root out inefficiencies in retailing and create business opportunities for entrepreneurs to reach widely dispersed audiences.
These three companies satisfy their customers better than anyone else at this point. About 1.9 billion people choose to have accounts with Facebook. Every day people choose to make about five trillion searches using Google. Amazon’s 300 million customers made it the 12th largest retailer in the United States in 2016.
And success attracts competitors, which is good for customers. Myspace led social networking for seven years after launching in 2003. But in 2010, 70.3 million people chose to visit Facebook — 100,000 more than visited Myspace — and these customers made Facebook the number one social platform.
Twenty years ago, Fortune magazine declared that Yahoo! had won the search wars and was on its way to becoming the next America Online. Within a few years, customers decided that Google was better than Yahoo! and now choose Google about 77% of the time. Customers do seem to agree with Fortune that Yahoo! and America Online should have similar fates.
Success also attracts success. These three companies have network effects, although of different types. Facebook’s customers form communities. Google attracts advertisers by attracting searchers, and the advertising funds constant search improvements. Amazon provides a dynamic environment for buyers and sellers. These network effects, combined with the relatively low cost of scaling up, cause these markets to tip.
Customers would suffer, and then “new” tech giants would emerge.
Imagine breaking up Facebook. Would any of its customers be better off if some were forced off the site to ensure it was smaller? Obviously not, from the customers’ perspectives.
Likewise, would searchers be better off if they were limited to using Google for no more than one-third of their searches? And should 200 million customers be told that they cannot use Amazon?
Obviously such actions to break up these companies or hamstring their business models hurt customers. And such government attacks on what customers want do not alter the underlying economics of these types of businesses: The same economic forces that led to these large companies would work to cause them to grow again or create new giants.
So the next time you hear about breaking up tech giants, think about all the customers who would suffer and the futility of the exercise.
(Disclosure statement: Mark Jamison provided consulting for Google in 2012 regarding whether Google should be considered a public utility.)
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