The biggest US technology companies have gone into a procurement race this year, sidelining intense scrutiny from competition watchdogs and critics who say they have proved their power by snatching newborn rivals.
The number of acquisitions by Google, Facebook, and Microsoft of the five largest companies – Amazon, Apple, Alphabet, came at the fastest pace since June 2015, according to data compiled by Bloomberg.
Tech deals are also gaining momentum in the face of step-up antitrust investigations under the Trump administration. Federal officials are investigating Google, Facebook, Apple and Amazon for antitrust violations, and the Justice Department under Attorney General William Barr is expected to file a demonetization case against Google in the coming weeks. Google and Facebook also face scrutiny by the state’s Attorney General.
A House panel is also investigating the state of competition in the technology sector and the CEOs of Amazon, Facebook, Google and Apple are all slated to testify at a virtual hearing on Wednesday.
As of June 30, five companies announced 27 deals, 29% from the same period last year, according to Bloomberg data, when they made 21 deals.
A boom in tech deals could provide ammo to economists, lawyers and lawmakers, who warned that tech companies have used their abundant cash to leverage on existing competitors and increase already high market shares. .
“As long as there is some enforcement in this area, companies think they can get away with it, and if they can overcome it, they are likely to try,” New York University law professor Scott Said Hemphill, who has written about it deals that eliminate emerging competitors.
Even more worrying is that tech companies are potentially out of competition by acquiring firms, while smaller ones may one day emerge as stronger rivals. After all, tech giants were once all startups.
This year’s transactions include Facebook’s $ 400 million purchase of Gippy, a library of video clips and animated images; Amazon’s pending bid for autonomous vehicle startup Zox; And Apple’s acquisition of the weather app Dark Sky. Prices were not disclosed in most cases, making it impossible to know how much money companies are spending. Amazon, for example, agreed to pay more than $ 1 billion for Zox information, But did not disclose the conditions to investors.
Northeastern University economist John Kwoka said, “Their routine practice requires everyone to vacuum in their space which can emerge as a rival or be an option in a fashion.” ”
Amazon said its deal as a percentage of income was lower than many other companies and said it was primarily expanding the business internally rather than acquiring. Spokespeople for other companies declined to comment.
In February, the FTC said it would look back at technical deals by the five companies that closed between 2010 and 2019, but were not reviewed as they fell below the threshold for reporting transactions.
Many tech deals have been flown under the radar with slim or no reviews by competition regulators around the world, often because targeted companies have little or no revenue.
Big tech is also buying amidst a world economy devastated by the coronovirus epidemic. Global economic output is expected to decline by 4.9% this year and compensate for bankruptcies and job losses through industries, but tech companies are enjoying increased traffic and sales. Collectively, the five companies are sitting on more than $ 450 billion in cash and short-term investments, helping them break away from targets that could worsen due to the recession.
Alex Petros, an advisor for policy on public knowledge, said that the power imbalance between small startups and large incurable technological platforms is “manifold in our current situation”, advocating tighter regulation to improve competitiveness. “This is an opportunity for platforms to woo their dominant position.”
The increased focus with most Contest Watches is in contrast to what the US competition watchdog had shown towards the previous merger of tech companies. Out of hundreds of transactions in the past decade, Kwoka, only one has been challenged: the acquisition of Google-flight-search software company ITI Software. The deal was approved by the Department of Justice after Google agreed to the terms.
Apple told investors in the spring that it planned to go ahead with the acquisition.
“We bought companies on a very regular basis,” Chief Financial Officer Luca Maestri said on the company’s earnings call in April. “We are always looking for ways to speed up our product roadmap or to fill gaps in both the hardware side, the service side, the software side. So, we will continue to do so. ”
This is a similar story in the European Union, where most tech giants’ deals fall under the revenue threshold for mandatory review by the European Review Authority. The European Union has never reviewed the Amazon deal, and it did not review Facebook’s 2012 acquisition of Instagram, although it approved the 2014 WhatsApp acquisition.
Through tech deals and waving at others to avoid a thorough investigation, calls are rising to a new approach to reviewing them, possibly by lowering threshold checks.
Hemphill of NYU said most takeovers by large tech companies are harmless, but just one acquisition of promising startups could stifle future competition that consumers can benefit from. “It only makes some bad deals, if allowed, it can cause huge losses,” he said.
Takeovers can be highlighted in a more gentle light. Tech companies say that acquisitions are a way of acquiring talent, developing new products and broadening their reach by entering new markets. They also provide incentives for founders to create startups by providing a way to cash their companies.
Antitrust experts are weighing the factors that were approved by the FTC in the case of Facebook’s takeover of Instagram: Have the social media giant’s resources and knowledge made Instagram what it is today? Or is it no explosion in popularity, and can Facebook emerge as a rival?
Purchasing also prevents other companies from putting their hands on promising ideas. Petros of Public Knowledge said Zox, a driverless vehicle startup, is not a direct threat to Amazon as an online retail competitor, but could become part of another company. Apple Google is closing the Dark Sky app for Android phones.
Amazon stated that ZoX operates in a highly competitive market with large and small companies developing autonomous vehicle technology. Amazon said that mixing Amazon with ZoX would help startups become more effective competitors, Amazon said.
Another concern is that major tech companies may use acquired firms to leverage on rivals. This may be the case with Facebook’s acquisition of Giphy, David Dinielli, a senior consultant at Omidyar Networks, who co-authored a paper outlining a no-confidence case against the company. He said Facebook could make it harder for rivals to use the library or cut access altogether.
Facebook said in May that developers would continue to have access to Gypsy.
“I would love to see super-strong, lively competitors with each other, really aggressively competing on quality, but we don’t have that right now,” Petros said. “So the competition we have to protect is a future potential competition.”