Will Hyperscaler Antitrust Really Enable Rise of New Dominant Competitors?

Some observers believe breaking up Google, Meta, Amazon would spur a new wave of upstart competitors. Others believe innovation might not be so robust, as the necessity of hyperscale app provider acquisitions of startups might be reduced. 

On the one hand, antitrust actions could break up the dominant technology leaders, possibly allowing space for smaller companies to develop new products and services. 

On the other hand, antitrust actions could also have negative effects on innovation. Additionally, antitrust actions could discourage investment in new technologies by both today’s giants and venture-backed firms. 

Hyperscalers might be less willing to invest if they expect further antitrust actions. Also, venture capital firms might be less willing to invest in startups if the “exit” formerly available--selling to one of the hyperscalers--is essentially foreclosed. 

The analogy of Google's emergence during the Microsoft antitrust case is considered a relevant precedent by some. In that view, the Microsoft antitrust case helped Google, as the case forced Microsoft to focus on its core businesses, which opened up opportunities for Google to enter the market.

Some might argue other possibilities exist. Antitrust action against IBM does not seem to have produced a big new wave of new competitors. The breakup of the AT&T system also arguably did not produce all that much innovation. 

Some might argue it was the creation of the internet, with its permissionless development model and “death of distance” impact, that enabled the rise of today’s hyperscalers. Antitrust action might have hobbled the targets, it is true. But the opportunities created by the internet to craft new products and business models would have developed in any case. 

Would Microsoft have created the search engine, social media, e-commerce or streaming video services? Would IBM have done so? 

The internet created a new platform for innovation by creating new opportunities for scale, revenue models, enabled by the “permissionless” entry model and dramatically different ways of generating revenue. Would Microsoft or IBM have conceived of advertising as the revenue model for technology services and products?

Would either firm have pioneered e-commerce as the revenue model for technology products?

Would either have invested in consumer services rather than business customers? Would either firm have moved so aggressively to monetize user-generated content? Would retailing have seemed a function ripe for disruption? Would either have created cloud computing? 

We might ask similar questions about whether the Telecommunications Act of 1996, which enabled full competition for local access services, “succeeded or failed.” Some might argue it was the emergence of the internet that disrupted markets and created new avenues for growth, not so much the shift to competitive local access. 

In fact, one might argue that antitrust actions had no impact on other developments that spurred innovation. 

The cost of information technology has been a major barrier to entry for startup software companies. But cloud computing sharply reduced those barriers. A study by McKinsey & Company found that the average startup software company can save an order of magnitude on capex for computing support by using cloud computing. 

The lower costs of cloud computing have made it possible for more startup software companies to enter the market, and had virtually nothing to do with the impact of antitrust action. 

So perhaps we can make an analogy. Policymakers wanted the Telecommunications Act of 1996 because it would bring competition to “telecom services.” That happened just as the internet was emerging as the (arguably) key driver of innovation in computing and communications. 

Likewise, antitrust efforts are predicated on the notion that hyperscale firm breakups will spur innovation. Perhaps that misses the point. Perhaps, as was the case around the turn of the century, innovation will be propelled by forces other than antitrust action. 

Perhaps the next generation of leaders in computing and apps will be produced not by regulatory action but by new technological possibilities, whether that is artificial intelligence or blockchain or cryptocurrency or something else we have yet to identify.