The Big Tech Bill That Could Backfire Spectacularly

Congress wants to stop most Big Tech acquisitions. But that won't neccesarily increase competition.

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The Big Tech Bill That Could Backfire Spectacularly

When writing antitrust legislation, you want to be precise. The key is to fire a well-guided missile to flatten the competitive landscape, not a dumb rocket that causes collateral damage.

Well, in its ambitious package of Big Tech antitrust legislation, Congress may have shot a dumb rocket. The Platform Competition and Opportunity Act, one of the five bills introduced last week, would effectively put an end to the tech giants’ ability to make acquisitions. Big Tech has acquired plenty of competitors over the years and either captured their growth or shut them down, so the act might seem logical. But such a broad ban could have serious unintended consequences and lead to less competition, not more.

The prospect of an acquisition — regardless of whether it takes place — tends to encourage productive behavior. Potential acquirers often hold off on copying startups’ products, understanding there’s a chance they’ll one day join forces. And startups typically press forward even when it’s clear they won’t reach IPO scale, anticipating they’ll sell to a bigger company and deliver a decent “exit” to investors and employees. With Big Tech companies off the table as possible acquirers, these incentives would dissipate, and the productive behavior could vanish in a hurry.

If prevented by law from acquiring startups, Big Tech would likely move straight to copying their features. We’re already seeing some of this as the federal government signals a stricter approach toward approving deals. Facebook, for instance, began testing its Clubhouse clone in public this week, a move that typically would’ve been preceded by an attempt to buy the company. Facebook’s contemplation of a deal, and the ensuing negotiations, would’ve given Clubhouse some time to grow independently. But instead, Clubhouse is now looking at a carbon copy of itself on a 2 billion-user platform. “Destroy Mode” is kind of Facebook’s thing. But a broad ban on acquisitions could easily make it commonplace among all the tech giants.

And if you can’t acquire a company, you can still spend the money to poach its best people, putting them to work on a copycat or other crucial projects. “Acquire the people instead of the company,” one Big Tech executive told me this week. “A well-funded copycat will attract talent faster than a startup without the escape velocity to get to IPO.”

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For startups, getting acquired by a Big Tech company is never the goal, but it’s a safety net that encourages the risk. If you aim to go public and fall short, you still have a decent chance of getting out with a solid return with Big Tech around. “I don't think most people realize that startups can implode at any second,” one startup founder told me. “Having a buyer always available is what makes the risk worth taking.”

With the Big Tech escape route closed off, some startups might successfully push toward an IPO. But others would either settle for worse deals from smaller companies or implode completely, altering the calculus of whether it’s worth founding a startup in the first place.

The money to start the company will likely still be there, at least. The prospect of getting cut off from Big Tech acquisitions doesn’t seem to be altering venture capitalists’ willingness to fund startups. With vast sums of money moving toward risky investments — thanks to Zero Interest Rate Policy — it’s never been easier for startups to raise cash. And pending legislation from Congress doesn’t seem likely to change that.

“There’s too much conjecture about what the future will look like to allow something like this to shift our investing strategy,” Anna Barber, a partner at the venture firm M13, told me. Still, Barber called the bill a “blunt instrument” and said Big Tech’s acquisitions might be better evaluated on a case by case basis by regulators, not broadly cut off by law.

A separate bill introduced last week — the Merger Filing Fee Modernization Act — would add tens of millions of dollars to the FTC’s budget, giving the agency the resources it needs to evaluate acquisitions properly. That seems like a smarter approach to reign in Big Tech’s behavior while preserving the market’s overall competitiveness.

The architect of the anti-acquisition bill, Rep. Hakeem Jeffries, did not respond to a Twitter DM this week. His spokesperson, Andy Eichar, did not respond to multiple emails either. So it’s unclear if they’ve anticipated the second-order effects their bill might bring forth.

Still, this is the beginning of a long process where the most ambitious set of antitrust reforms in a century will be debated, refined, and possibly passed into law. Some of the ideas in this legislation are very good, others are lacking, and the debate is just getting underway. By the end, and with some luck, there’s a decent chance Congress won’t blast away the marketplace with poorly aimed ordinance.

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Further Reading:

The Antitrust Revolution Has Found Its Leader (Matt Stoller)

Antitrust posturing (Benedict Evans)

The Cicilline Salvo (Stratechery)

News Briefs:

New FTC chair already rocking boats (Axios)

It was major news when Lina Kahn was nominated to the FTC. Now, the 32-year old law professor is going to chair it. Khan famously wrote a Yale Law Journal article that redefined the debate on Amazon’s anticompetitive behavior. And being chair means leading the agency’s effort to reign in the company’s excesses. "The difference between being a mere commissioner and being chair is the difference between going to the moon and going to Mars," former FTC Chairman William Kovacic told Axios. "Mars is a much bigger deal."

He Warned Apple About the Risks in China. Then They Became Reality. (New York Times)

Apple’s over-reliance on China has forced the company to compromise on some of its core values, including all-important user privacy. Doug Guthrie, a China expert who Apple hired in 2014, has since left the company and is now speaking out about the dangers of doing business in the country. Apple’s extreme dependence on China continues to be an alarming issue that only seems likely to get worse over time.

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