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Too Big to Succeed? How Do You Solve a Problem like GAFA?

Frédéric Lasnier
Frédéric Lasnier
Chief Executive Officer

In 2012, the French prestige newspaper Le Monde coined the term “GAFA” to refer to the tech giants Google, Amazon, Facebook, and Apple.

Used mostly in continental Europe, the term GAFA has started to gain traction in the English-speaking press, as both a convenient shorthand for some very big companies, and to describe a new kind of problem in the world of digital business.

GAFA - digital business

Size does matter

Every commentator has a favorite way of describing the scale of this issue – for example: for every 100 dollars spent in US retail online, 49.10 dollars goes through Amazon. Or: 92 out of every 100 internet searches use Google – which also has 75% of smartphone operating systems.

And so on. We don’t need more statistics to make this clearer; just consider the linguistic fact that you probably reached this page by doing something you refer to as googling!

Is this a problem?

So is it a problem that this “tech quadropoly” dominates our digital landscape?

The short answer has been, up until recently, no. Google searches are accurate and quick. Amazon’s customer service is legendary. Facebook genuinely does provide one-stop social networking. And of course, Apple really does make stellar products.

But with great size comes great scrutiny, and reputations can quickly unravel.

  • Google’s ruthless attitude to and acquisition of its competition have earned it few sympathizers in Silicon Valley or anywhere else. Amazon’s mistreatment of its workers has already entered modern folklore. Facebook has suffered hit after PR hit, with multiple security breaches, and outright sale of personal data collected from millions of users. Apple’s predatory manufacturing policies receive intense focus and indignation.

  • As one result, the GAFA are among the least trusted entities on the planet, with only 14% of American users believing that Facebook respects their privacy (highest-rated Amazon gets only 32%). About 2 out of 3 Americans, when polled, support breaking these companies up into component pieces.

  • The Department of Justice (DOJ) has announced a major antitrust investigation, while the Federal Trade Commission (FTC) fined Facebook $5 billion in July 2019 for failing to protect users’ data. The House Judiciary Committee has initiated an antitrust probe into GAFA. Bernie Sanders and Elizabeth Warren, presidential candidates in the USA as I write these words, have both made GAFA criticism fundamental planks in their policy platforms.

Breaking up is hard to do

But while “breaking them up” seems to solve the problem of overconcentration, and while it is cited as the default option by the media and in the political cybersphere, the devil, as they say, is in the details.

What would it mean to “breakup” Google? Splitting off YouTube or Chrome? What are the basic component “parts” of Facebook which could work as separate companies? WhatsApp? Instagram? Libra crypto-currency? How much would be lost in the process?

Like the UK after Brexit, nobody knows what a GAFA breakup would look like because nobody knows how to do it fairly and intelligently, while still keeping the benefits these tech giants provide.

Another point of view

But maybe we could take a step back and look not at how pundits and opinion-makers think we should be responding, but how in fact we are responding to this concentration of digital power. As it turns out, the three main responses – coincidentally? – break down geopolitically. We start with the USA.

America – Laissez faire

Despite its fearsome trustbusting reputation, the US government has in fact broken up large companies only three times in the last 100 years: Standard Oil in 1911; AT&T in 1982; and Microsoft in the 1990s (although after appeals, Microsoft remains one company today). American inaction in the face of monopoly is in fact the default response. Whatever their rhetoric, American states continue to offer tax breaks to attract GAFA offices and American officials routinely wave through acquisitions without question (did the FTC or DOJ raise any objection to Google’s acquisition of YouTube, for example?)

The American government is the only entity with deep enough pockets and enough clout to break these giants up – and on their home turf. But for all the fines, and the polls declaring American public mistrust, and posturing from presidential candidates, the American attitude can be summed up as “Investigate – fine – bluster – do nothing”.

The Americans tend to view these American companies as a way to keep capital and jobs at home, and to project American soft power abroad.

China – Yankee, Go Home!

The response of America’s great rival China has been to ban or severely discourage the American companies, and encourage their Chinese equivalents: the “BATX” – so Baidu has become a search engine giant; Alibaba acts as the Chinese version of Amazon; Tencent brings social networking to China; and Xiaomi successfully mirrors Apple in the Middle Kingdom.

This approach confers three great advantages on the Chinese tech giants. Most obviously, it opens a gigantic internal market where the companies are the only game in town. Second, they can learn from the mistakes, and copy the successes of GAFA. Third, they can market their product to the rest of the world, eating into international American dominance.

Europe – Engage and contain

The most interesting response for me, however comes from Europe, where GAFA is neither tacitly encouraged nor actively banned. Instead, like the US during the Cold War, Europe is trying to engage with GAFA, but contain their power – and this, through three techniques.

  1. The first is fines. In 2017, the European Union imposed a €2.4 billion fine on Google for unfair online search practices. In 2018, another record fine on Google imposed €4.3 billion for illegal practices in its Android ecosystem.

    The European Commission understands that the only entities in the world today capable of counterbalancing these megacorporations are entire trading blocs.

  2. So the second European ‘taming’ technique uses taxes. Beginning in January, 2019, France has imposed a “3% of digital turnover” tax on revenues in France over $25M. However, recognizing the futility of any purely national approach, France is spearheading the move to corral the member states of the Union into making the taxes which are already in place more effective. But European Union member states do not operate under a common fiscal policy, so France is also a prime mover in the next and most important technique –

  3. This third technique goes beyond taxes and fines, and changes the very context for digital business. This new environment is being constructed under the heading of the “Digital Single Market”, or DSM. The DSM strategy, first published in 2015, aims at taking the “free movement” principle in Europe for goods, services, and people, and extending it to include data. A surprisingly complex problem, and one where the European Commission is devoting increasing resources and attention.

    The first initiative in this DSM came with the GDPR (General Data Protection Regulation), which provides a legal platform for imposing sanctions on GAFA or by defining regulations aimed at putting users’ privacy first. A huge start, but the DSM project goes much further, promising far-reaching implications for all of us who do digital business in Europe, whether coding, consulting, banking, selling, or buying.

I have already considered some aspects of GDPR in this blog. In the next entry, we’ll be taking a look at some of the ways the DSM changes business, discussing how to successfully navigate in the digital world of the European future.

 

Some more resources and reflections about the GAFA and the digital landscape:

Digital Natives or Fortune 500’s, Which Ones Are Worth Chasing?

Customer Acquisition Costs: Is It Possible to Escape GAFA and Privatization of the Web?

Poll: Two-thirds of Americans want to break up companies like Amazon and Google

What would breaking up Big Tech companies mean for you?


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