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Big Tech: Angel or Demon?

Delwin Graham - Oct 25, 2021
Big tech has been coming under increased regulatory pressure for anti-competitive behaviour. But it is the size of these companies that allows them to offer the benefits of a powerful network effect to their users.

The traditional view on tech companies has been that they are good corporate citizens. They have by and large embraced diversity and human rights. They are known for treating employees well and generally offer fair wages, comprehensive social programs, and generous benefits. Moreover, technology companies have played a key role in the response to the global pandemic by allowing us the flexibility to re-orient our economy to protect our health. (Cf., Robert Young and Doug Taylor, “Canadian Technology Review”, Canaccord Genuity Capital Markets, September 25, 2020)

But the honeymoon might be coming to an end. Big tech has been coming under increased regulatory pressure for anti-competitive behaviour. But it is the size of these companies that allows them to offer the benefits of a powerful network effect to their users. YouTube has 2B+ monthly unique users, and Facebook (including Instagram and WhatsApp) has 2B+ daily users. Amazon has approximately 150M prime users and 2.5M sellers in its marketplace and a large global user base. With this scale, they can offer valuable search and media services for free and e-commerce at lower prices. (Cf., Young and Taylor, “Canadian Technology Review”)

Anti-trust. Anti-trust efforts disproportionately target the largest technology companies because these companies disproportionately serve the most users in developed countries. App stores have been accused of monopolistic practices, raking in a meaningful share of the economics from independent app developers, who are forced to surrender 30% of revenues to platforms such as Apple and Google. While Amazon is accused of favouring its own products, it has provided more selection and lower prices.

While Huawei is often ridiculed for using the designs and intellectual property (IP) of its competitors, the practice is common across the sector. Large technology companies with strong balance sheets have been able to shrug off IP infringement. While it is important for tech companies to invest in patents to protect their technology, these patents are only valuable if they can be defended.

Data and privacy. Big tech companies like Tencent and Palantir have been accused of enabling government and corporate surveillance. They have also been amassing large amounts of data on how their users browse and search online and even how they behave offline. As users surrender biometric data which can enable their identification by voice, fingerprint, optical scan, and face, users become easier to track and trace.

Data breaches also put user identities and finances at risk. The most recent incident is from Twitch, which is owned by Amazon; confidential company financials, including the income of their streamers, were leaked.

Content creation. As per Netflix and Facebook, technology companies are taking a bigger role in content creation and distribution, and they have been accused of swaying public opinion, supporting hate speech, distributing “fake news”, and distributing pornographic or copyrighted material.

AI. While artificial intelligence (AI) has been used by big tech to curate their services for a specific user, this also opens the opportunity for the biases that are embedded in data to be amplified, which could have ramifications for preserving prejudices.

Labour. While employees in Western countries are generally well treated, production is often outsourced to low-cost regions where workers are undercompensated and must work long hours in poor conditions. Moreover, some of the raw materials needed to build leading-edge hardware, like rare earth metals and cobalt, are often sourced from brutal regimes in conflict regions.

Energy consumption. Although technology companies do not have a reputation for the consumption of resources, there is growing concern about energy usage, especially in relation to cryptocurrency mining. There is also some controversy about the energy usage in the data centers used for cloud computing. To this point, tech companies are investing in clean-energy projects and offsetting carbon credits to minimize their climate impact.

Waste management. Due to rampant technology innovation, e-waste is increasing in volume, and if not managed properly, it could lead to severe health and environmental impacts. Moreover and more often than not, toxic materials such as lead, mercury, PVC, and plastic are found in e-waste, which poses a high risk to labour. Technology companies are starting to pay closer attention to the efficient and safe recycling of e‑waste, which comes at a high financial cost.

Share structures. Probably the biggest corporate issue for tech companies, especially in Canada, is dual share structures. These are set up to infer an outsized control to founders beyond their economic ownership and reduce the rights of common shareholders.

But the monopolistic tendencies of big tech stem from their vast scalability, which enables innovative and cost-effective solutions to reach a broader global audience. The benefits conferred upon the world by big tech are many.

Access to information. Access to search platforms like Google has allowed almost instantaneous access to information from almost anywhere in the world. Specifically in reference to the investment community, the almost-instant dissemination of information has allowed for more democratic and efficient markets.

Freedom of speech. Internet platforms provide equal access without traditional gatekeepers like governments, newspaper editors, etc. The rise of countless social‑media outlets has enabled a host of opinions on popular political and social matters, which would have been dominated by the media or smaller groups before the advent of the internet.

Levels the field. Small companies are able to leverage the scalability of larger platforms to build their businesses without the required capital cost of infrastructure or development teams. The services of Shopify are a case in point.

Progressive causes. Large tech has been at the forefront of green campuses, diversity in hiring, and acceptance of LGBTQ rights, as well as having helped charitable-giving.

Environmental. Optimization in supply-chain management, including the use of blockchain technology, has helped to reduce companies’ carbon footprint and more rapidly meet environmental objectives. The ecosystem of sensors and interconnected devices that is being developed as the Internet of Things (IoT) should promote further efficiencies in industrial settings by helping companies monitor their outputs to meet their targets.

As with most things, the rise of big tech has been a mixed blessing. On the one hand, it has inherent monopolistic tendencies and can throttle competition. On the other hand, the scalability that it affords has allowed for unprecedented access to information, more choices, and lower prices. Feel free to contact me at dgraham@cgf.com or 780‑408‑1518 to discuss.