Meta Platforms Inc (NASDAQ: FB), Facebook as used to be, isn’t going to be particularly affected by the order to undo the acquisition of Giphy, that recent ruling from the UK regulator. However, on the basis that trends tend to persist this is the beginning, perhaps, of a different world for the tech giants. One in which their activities are subject to much greater regulatory oversight.
It’s difficult to be too cynical about the interface of politics and business – the correct question is always “Am I being cynical enough?” – but here it’s especially warranted. TikTok has just, in only a year, soared up from nothing to being in the top three of social media sites. This clearly isn’t a stable oligopoly. But the regulators – here the UK but Lina Khan, newly at the FTC, is a driving force for the idea – are really insisting that since Big Tech is a large part of the modern economy then Big Tech must be regulated by politics. After all, what’s the point of being in politics if you don’t get to have power?
So, using fairly spurious – see TikTok – allegations of oligopoly and market power those regulators are looking to overturn the last few decades of antitrust rulings. It has been that action is only justified when there is consumer damage. Now it’s to be there must be action when bureaucrats feel like taking action.
At which point that reversal of the Giphy takeover by Facebook/Meta. It’s not going to have any grand – or even more than very minor – effect on Facebook in itself. It’s the direction of travel that matters here.
The Big Tech companies – and this will include Amazon, Google and others as well – are going to find themselves ever more boxed in in what they can do. The acquisition of new upstarts is going to become much more difficult. We could even say that this is the point of the actions, making them more subject to displacement by innovators. Except that’s not really the way it happens. The innovation comes from one of the large companies taking over the smaller idea and then deploying it at scale. Growing to scale is very much more difficult.
So, we might well see a reduction in innovation and thus the dangers to established players – this will be beneficial for profits and so share valuations. Reduce the ability of Amazon. Google and so on to buy in competitors to Facebook and Facebook’s stock is worth more.
It’s also true that, cynics as we should be, the regulators just aren’t going to manage to increase competition even if they do have more power over corporate activities. It always does seem to work out that the regulators end up protecting incumbents, not aiding competition to them – this is called “regulatory capture”. It’s an abiding feature of regulatory organisations that this happens.
That is, while we can view greater regulation of Facebook and the tech giants as being detrimental to those companies it’s not quite so slam dunk as that. The history of regulatory efforts would support a reading they entrench, not displace, incumbents. Meaning that the more the FTC etc work on Big Tech like Facebook then the more valuable the companies are going to become.
It’s also possible, again, to be a cynic. All the bright people are off in the tech companies making millions. It’s the third raters who went into the regulators. So, who do we think will win?
Greater regulation of Big Tech – whatever the evidence about Facebook and Giphy – might well be a positive for Big Tech stocks.
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Tim Worstall is a freelance writer specialising in economics and the financial markets.