When Microsoft announced its $26 billion purchase of the business-networking company LinkedIn this past week, the deal touched off speculation that Twitter would be the next big social media outlet to be taken over. Growth of the 140-character microblogging platform has been slow. Its stock has suffered. But if there’s no hope for Twitter as a stand-alone company in a tech world increasingly dominated by a Big Five — Apple, Google, Microsoft, Amazon, and Facebook — the prospects for all sorts of other businesses look even scarier.
By lots of measures, Twitter has much going for it. It has 320 million active users, who provide content for nothing. It has a dedicated following in influential niches: news junkies, sports fans, tech buffs, politicians. Indeed, a certain Republican presidential candidate has built his campaign around it.
Compared with Facebook users, people on Twitter skew younger, wealthier, more urban, more ethnically diverse. Despite some high-profile executive shifts and other business goofs by the company, your favorite band, your college econ professor, and the restaurant across the street all want you to follow them on Twitter.
Here’s a warning for every other enterprise: A service can be innovative, highly useful, something 320 million people can’t do without — and still not be able to compete against members of the Big Five. That’s a problem for Twitter, obviously. But when a handful of firms become so dominant that nobody else survives, it’s also a problem for the economy as a whole.
The promise of capitalism is that anyone with a great idea can overturn an entire industry. But other factors work against new entrants. In a winner-take-all economy, the greatest rewards flow to those who are already successful. Last year, according to an analysis by USA Today, just 28 companies earned half of all the income generated by all the American companies in the S&P 500; Apple alone accounted for 6.7 percent of that total.
In the tech world in particular, life is getting tougher, because of network effects and economies of scale, for anybody who’s not the Big Five. Apple, Google, Microsoft, Amazon, and Facebook compete with each other across a startling range of businesses: operating systems, instant messaging, cloud computing, advertising, voice-controlled personal assistance, driverless cars, thermostats, home delivery. The question is how much room they’re leaving for everyone else. Traditional businesses like retail stores and news organizations are feeling the squeeze, but so are prominent Internet brands such as Twitter and Yelp.
The challenge isn’t just that the tech giants can amass more data and apply more engineering muscle than everyone else. Yeah, we all love our iPhones, but Apple didn’t gain the world’s largest market capitalization just through the genius of Steve Jobs. It’s also been the practitioner of dark arts like “Double Irish with a Dutch Sandwich,” a highly complex accounting loophole (now closed) in which US firms could limit their taxes by channeling revenues through Ireland, the Netherlands, and the Caribbean.
Because of the piles of cash that they amass by whichever methods, the tech giants can outspend and outlast anyone.
LinkedIn CEO Jeff Weiner all but said that this week. In a letter to employees, Weiner noted LinkedIn’s disadvantage relative to the Big Five and the pressure his company faces “to compromise on long-term investment.” The underlying message was: If you can’t beat 'em, let yourself be assimilated into 'em.
Large, dominant firms often slip up, as Microsoft has with past acquisitions. Yet even in the tech world, companies can dine off old advantages for years. Among the only firms with the scale and deep pockets to compete with the Fab Five are the broadband providers Verizon and Comcast, whose current success is grounded in ancient, government-enforced telephone and cable monopolies.
The longer the current oligopoly holds, the more attention it deserves from Congress and federal antitrust regulators.
Government efforts to promote competition in the tech world have yielded mixed results. In the 1990s, the Justice Department went after Microsoft for using its Windows monopoly to elbow out competing Internet browsers. Praised by consumer advocates at the time, the suit looked far less prescient as mobile devices began to supplant desktop computers a few years later. But consider a far bolder effort — the government’s breakup of AT&T in the 1980s. The move was controversial at the time, and mystifying to many consumers. But the innovation that flourished in telecommunications might never have happened had the Bell System kept its grip on that one vital industry.
Today’s environment is far different: A handful of companies fight each other fiercely in an ever-expanding number of business categories but squeeze out or buy up everyone else. It’s not even clear regulators have the legal tools to address this new type of competitive gigantism that forecloses other competition.
Maybe some brash, insurgent company will acquire Twitter and use it to shake up the status quo. But probably not. One possible buyer is Comcast. Most of the speculation, though, revolves around Google.