FAAG – The game of monopoly

Facebook, Apple, Amazon and Google will have to fight for their businesses.

• The US Congress has issued a damning report that accuses Apple, Google, Facebook and Amazon of abusing their market dominance setting the scene for a colossal power struggle.

Apple

• The complaint here is centred around the app store and will have Epic Games (see here) hopping around with glee.
• The US Congress has made similar complaints to those made by Epic Games but instead has focused on how rivals are disadvantaged through Apple’s control of the platform rather than the fee itself.
• Parental control is a good example of this where Apple removed the apps of parental control companies on what I think were dubious grounds (see here) just as it was launching its own screen time feature.
• Screen time was not as comprehensive in terms of its offering meaning that it could easily be concluded that Apple removed superior competition to drive usage of an inferior product which it could then improve at its own pace.
• Apple argues that this was done for security and privacy reasons which is a common fallback these days, but I suspect the validity of this argument will end up being decided in a court of some description.

Amazon

• The complaint against Amazon is that 3^rd party sellers are so dependent on it that they have no ability to protest Amazon’s fees and policies.
• Some of these policies allow Amazon to have access to data of 3^rd party transactions on its site which Amazon has promised not to use.
• US Congress alleges that Amazon has broken this promise and abused its position of power as it relates to 3^rd party sellers.
• Amazon’s aggressive tactics with 3^rd party sellers have been known in the public domain for some time.
• However, Amazon will argue that 3^rd parties are free to leave Amazon anytime they please, which I think may end up being a stronger argument than the one Apple is making.

Google

• The complaint against is an old chestnut and one that the EU has already investigated.
• This is that Google uses its dominant position as the supplier of Android and the Google Play store to force handset makers to put its other services like Search and Chrome front and centre on devices and set them by default.
• The claim is that Google uses this power to keep competing app stores and search engines at a disadvantage which is another allegation that will bring a wry smile to Epic Games’ lips.

Facebook

• The complaint against Facebook centres around its acquisition of Instagram.
• The US Congress alleges that the two companies were managed in collusion with one another so that one would not get so big as to swamp the users of the other.
• This is the most dubious of all of the allegations and of the three, I think Facebook will have the least difficulty in disproving these allegations.

Take-Home Message

• This report comes from the Democrat-controlled House of Representatives and does not have the full endorsement of the Republicans.
• There are going to be a number of points on which both sides agree, but there is enough disagreement that this is very unlikely to be the final position of the US government before any formal proceedings are brought.
• Hence, I think the whole thing goes on ice until at least November 3^rd but even then, it will be a long time before any real action can be brought.
• This is negative for the big four as any remedies are going to hurt their ability to dominate their respective markets.
• However, of the four, I think the weakest case by far is Facebook and I can’t see this report being able to do much if anything to Facebook.
• This does not mean that I want to rush out and buy Facebook because the shares in all of these companies have been pumped up by the loose fiscal environment and rampant money printing.
• Hence, I would stay out of the large-cap technology sector and would instead look for some of the more defensive names (if anything) for when the inevitable correction comes.