FTC Targets Big Tech and That Will Have a Huge Impact on Startups

FTC Targets Big Tech and That Will Have a Huge Impact on Startups

For the last couple of years, there's been a growing sense that regulators might target big tech. The FAANG companies--Facebook, Apple, Amazon, Netf

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For the last couple of years, there’s been a growing sense that regulators might target big tech. The FAANG companies–Facebook, Apple, Amazon, Netflix, and Google–and other tech industry names like Tesla have had varying degrees of success disrupted by regulatory clashes.

Animus on the part of regulators around the world has been building over perceived anti-competitive behavior, tax avoidance, data and privacy disasters, and other things. The people who make the rules seem to be stepping toward enforcing them in a big way. For example, the chair of the Federal Trade Commission has said that he’d be willing to break up big tech companies, according to a Bloomberg report.

Some of this may be annoyance, some concern, some political vendettas (it’s becoming a 2020 campaign issue), and some grandstanding. But it doesn’t matter, because eventually any of these motivations–or, more likely, a combination–could spark major attempts to restrict or even break up the companies.

If you’re an entrepreneur and have a startup, this could have big impacts, some good and plenty bad.

1. Availability of services

The big tech companies have become major service providers. Whether it’s cloud-based services, advertising platforms, critical business process applications, hardware, or something else, many businesses depend on the big tech companies.

Say one is broken up. That may not matter for your use and business, or it may a great deal, depending on what gets disrupted and twisted around. The more a company deals with major legal issues, the less attention it focuses on running the business.

If a provider that is important to you comes under this sort of major scrutiny, start looking for an alternative provider. If something goes wrong, you want a prepared transition you can put into place.

2. Don’t expect a tech reprieve

The term breakup can have a lot of positive connotations. The shattering of the old AT&T into multiple Baby Bells decades ago led to better pricing and levels of service because of competition.

That might happen with a breakup of some of the tech companies. Or it might not. Talk to experts in law and business and you quickly learn that breaking up the current big tech companies could be far harder to do in practice than people assume. There isn’t necessarily a clear legal basis, and there would have to be natural components to break the company into.

It might be that there are, in some cases–although the legal argument to say that Google, for example, could have the search platform but not a way to have ads that pay for it would be interesting and hard fought, to say the least. And the time in court would likely take years. The AT&T saga lasted eight.

If things come down to fines, then a number of the companies could foot the bill, as Facebook did with the $5 billion one, and count it as a cost of doing business. If they’re left operating anywhere near their current state, they’d likely continue to buy startups that might one day be competitors or create competitive divisions to drive the smaller companies out of business if possible.

It doesn’t always work. At one point, Intuit was much smaller than it is now and Microsoft tried launching its own financial products to compete, but they never took off. However, that’s never a safe bet for a young business.

3. Young companies become a target

A classic problem for smaller businesses can be large ones that encourage heavier regulation. That may sound crazy at first. What company wants to invite or at least tolerate greater regulation?

But it has been a successful approach at times. Large banks frequently have made peace with regulation for two reasons. One, if you cooperate, you get a hand in creating regulations you’re comfortable with. Second, the amortized compliance costs per customer or transaction are low if the business is big enough. Smaller banks couldn’t spread compliance expenses over as large a book of business.

Also, for regulators who want to show some “success,” it’s easier to go after a smaller company without the resources to mount a fight the way a giant corporation can. If yours gets targeted, don’t expect to negotiate the relatively lenient consent decrees that the big companies get. Your fine will hurt, and there’s probably a greater chance someone will go to jail.

Again, not to say that regulatory control of big tech companies is bad. Just don’t expect it to send your business flying in a good way.

The opinions expressed here by Inc.com columnists are their own, not those of Inc.com.

This article is from Inc.com

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