Being screwed by big tech? The regulators won’t save you

 

It’s in the news all the time – regulators are looking at big tech.  The European Commission threatens big tech with violations of competition law.  In the US, the FTC and DoJ are conducting anti-trust investigations.

It’s time to break up big tech, right?  Wrong – it ain’t gonna happen.

Now why is that – is big tech too big to fail?  Ask Lehman Bros – oops, you can’t – they failed.

Is it big tech’s deep pockets, spending tons on lobbyists who fend off the politicians with campaign donations?  Yeh, maybe – but big banks spend tons on lobbyists and they’re regulated like all-get-out.

Big tech moves fast

A big reason that big tech firms are avoiding break-ups is that they move too fast for the regulators. Tech players take huge advantage of that.

Uber, for instance, grew fast by moving into a new city and undermining the heavily regulated taxi industry and public transportation there in just weeks.  By the time the regulators caught on, Uber owned such a large share of the personal transportation market that any new regulations had to account for Uber’s revolutionary new model.

Big tech firms really know their buyers and their regulators

More importantly, big tech firms know so much about their markets and their consumers that, when they stray into the kind of societal resistance that can trigger regulation, they can self-correct.

Experts in customer satisfaction know that you can’t spend enough to have the perfectly satisfied customer.  But you can spend just enough to have customers whose levels of satisfaction are sufficient to stick with you – most of the time.

It’s the same with big tech and social satisfaction. With business models based in part on social technologies, they know enough about their markets and consumers – and about the politicians and regulators – that they can pull back before any egregious practices trigger new regulations.

Big regs follow big disasters rather than prevent them

Besides, in most cases, changes in regulations take years to happen.  Absent massive loss of life or life’s savings, it’s only rarely that voters demand immediate and big legislative and regulatory change.

In 1887, Congress passed the Interstate Commerce Act making railroads the first industry to be regulated at the federal level – but only after large losses of lives due to train crashes.  Federal financial services regulation only started after the 1929 stock market crash which led to a global depression.  So far, big tech has led to neither massive losses of life nor savings.

That’s not to say a big tech regulatory storm won’t happen.  A cloud meltdown big enough to cause massive regulatory change is within the realm of possibility, but huge regulatory legislation nearly always follows disaster rather than prevents it.  Short of a massive big tech fail that kills people or results in major losses of personal savings, regulatory evolution will remain much slower than big tech business model evolution.

No big regulatory change for big tech

So, what does this all mean for the enterprise buyers of IT services?  First of all, be reassured that the big cloud firms like Amazon, Microsoft and Google are not going to face break-ups nor sudden regulatory shifts that could threaten their business models or costs.  Despite all the talk about the regulatory challenges of cloud services, ranging from privacy and cybersecurity to concentration risks and monopolistic power, sudden regulatory change is unlikely.

Sure, there will be incremental increases of regulation over time, but in most cases, big tech so outpaces the regulators, that the business models being regulated will hardly exist by the time the regulations go into effect.

Avoid big tech lock-in

Since the big cloud services firms are unlikely to face major regulatory changes that would undermine their business models, enterprise buyers can employ traditional means of keeping costs under control.

Large enterprises with high switching costs can buy services from two or three of the large cloud services providers, and even from the hosts of smaller providers, and in negotiations offer or threaten to shift a portion of their buy from one to the other.

Smaller buyers may be able to buy from more than one provider as well, but being smaller, a loss of share is not much of a threat to a big tech provider. Instead, consider buying from the second-tier providers who are hungrier, or negotiate with the big guys over extra services.  Being not as likely to budge on price, they may be more willing to throw in a toaster oven and some other extras if they can keep your account.

Bottom line – pay no attention to threats to break-up big tech and employ your traditional tactics to avoid the negative consequences of vendor lock-in.

Credit – thank you to Dan Miklovic, Peter Brooks and Tom Austin whose insights contributed to this opinion piece.

Disclaimer — this is an opinion piece and the opinions are the author’s.  They do not necessarily reflect the opinions of The Analyst Syndicate or other organizations.

Disclosure

The views and opinions in this analysis are my own and do not represent positions or opinions of The Analyst Syndicate. Read more on the Disclosure Policy.

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