News that the Competition and Markets Authority (CMA) has opened investigations into Google and Apple prompts an interesting question; can big tech ever become too big?
Competition and protection
Competition and protection are two sides of the same coin, both integral in the development of new technology and innovation. While there needs to be a return for those willing to take risks and invest in new technology, competition will help to develop sectors going forward. Which is more important?
All investment needs a return
We know that technology shares are very popular with short-term/day traders due to their relative volatility compared to the market. While modern day tech giants such as Google and Apple have dominant positions in their markets, all investments need a return. If, as looks likely, Google and Apple will have restrictions imposed on them, where is the incentive to invest in these areas going forward?
If you look further back, you will see that governments have actively encouraged tech giants in years gone by with tax incentives, grants and other forms of funding. However, once they become too dominant this tends to open the door to tough regulations and additional taxes.
Competition breeds innovation
On the flipside of the coin, we know that competition breeds innovation which can breathe new life into industry. If there are perceived barriers to entry, the technology companies of tomorrow will struggle to raise the required funding. Consequently, the knock-on effect is that many companies will fail, or be taken out by larger companies, leaving the tech giants in an even more dominant position.
The Internet search engine market is a prime example where Google is the dominant player having killed off competition from Bing and Yahoo. Akin to the historic VHS/Betamax argument, consumers and businesses have chosen their preferred option. It will be nigh on impossible for the likes of Bing and Yahoo to make any significant roads into Google’s market share, and it is too expensive for new entrants.
Innovation and cost efficiencies
If we look at the FinTech industry at the moment, there are strong companies emerging but there is no one dominant force. The fact that innovation also creates efficiencies and cost saving measures, allowing reinvestment in businesses going forward, while often enhancing digital delivery channels can be a game changer. There is also the potential for small tech start-ups to work together, without any major friction, and create a sum which can be bigger than their parts.
So, while we can see the reasons why established tech companies may be against opening up their markets to new innovators, innovation is a key element of any business cycle.
Regulatory interference
Time and time again governments and regulators around the world return to type. When a new up-and-coming company is doing well, but no direct threat, encouragement is often forthcoming. However, when these companies fulfil their potential and become a dominant force in their industry there isoften a significant change in their relationship with regulators. Very often they stop working together, instead preferring head-to-head confrontations, often carried out in the public domain.
Investing in new technology
As we touched on above, many short-term/day traders are attracted by the relative volatility of the technology sector. Ironically, it is our ongoing investment in new technology and dealing platforms which provides the low latency trading services regular traders require. Looking back at trading systems of 20 years ago or even 10 years ago is akin to comparing night with day. Innovation and long-term investment also allows us to maintain a competitive charging structure.
In the world of technology, regulators need to find a balance between restricting the returns of dominant players and encouraging innovation. Good look with that one!