Are We Overestimating Big Tech?By Cinthya Alaniz Salazar | Wed, 11/10/2021 - 10:26
Big Tech made headlines Monday as Google’s parent company Alphabet Inc. joined the two US$2 trillion-dollar market cap club. As bullish investors rush to buy stocks, a second look at Big Tech’s scrapes with intellectual property infringement and impending regulatory changes indicate that the value and permeance of these companies might be inflated.
After reaching the US$1 trillion threshold just the year before, Alphabet has become a top performer among tech giants due to a resurgence in Google’s digital ads and the growth of its cloud services business. The company sits just under Microsoft and Apple, which are roughly valued at about US$2.5 trillion each, while Amazon follows with a valuation of US$1.7 trillion and Tesla with US$1.25 trillion. Collectively, these companies are worth nearly a quarter of the entire S&P 500 market value.
If it seems unrealistic for so many companies to be valued so exorbitantly, it is probably because they are. Wall Street analysists have pointed to these companies’ sustained earnings growth as an indicator of Big Tech´s strong performance, which is true, but it has been without consideration of their monopolistic tendencies to coopt the intellectual property of smaller rival companies, thereby distorting their true innovative capacity. Furthermore, this has led to string of legal battles that has cost Big Tech billions domestically and abroad.
Most recently the US International Trade Commission ruled in favor of Sonos Inc. over Google citing the infringement of five smart speaker patents. If the ruling is upheld it would compel the tech giant not only to pay a multi-million dollar fine, but potentially lead to a ban on Google Pixel smartphones and Nest speakers. Google has since filed a countersuit while Sonos has filed another case on top of this initial win.
This development is far from an isolated incident. Just a month prior to Google’s ruling, a federal jury in Texas ordered Apple Inc. to pay US$300 million in royalties to PanOptis LLC after it was found that Apple had willfully infringed five of the plaintiffs 4G technology patents. In another case settled last year, Apple was ordered to payout roughly US$1 billion in damages to VirnetX, an internet security software company over the infringement of two of its patents.
Aside from the mounting and expensive legal cases, Big Tech has come under increasing scrutiny from international governments that will foreseeably lead to regulatory oversight domestically and abroad. The US government has been slow to crackdown on homegrown tech giants, but this may soon come to end after Facebook’s, now Meta, ‘Big Tobacco’ moment before congress after leaked documents that proved the tech company knew it was actively contributing to several harmful social issues. The EU has been much more proactive, famously slapping Google with several multibillion dollar fines in three antitrust cases.
While putting a price on social welfare is difficult, finance services are a different matter and it is here where most governments have been able to respond fast to Big Tech’s encroachment. Concerned about the monopolization of the Fintech market in Mexico, the federal government interceded preemptively, drafting one of the first regulatory bodies meant to promote innovation in this sector and protect consumers.
“Big Tech will not be able to access the transactional information of its users and if they want access to this data, the corresponding authority will require them to meet certain requirements,” said Gilberto Pérez Hernández, General Director of Regulatory Development, National Banking and Securities Commission (CNBV).
Overall, as these lawsuits suggest, it is unclear if Big Tech’s individual successes are their own and, with looming oversight rules ahead, if they will be able to maintain their observed growth rate at the pace when they were left unchecked.