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posted on 12 July 2017

The U.S. Trusts In Technology

from STRATFOR

-- this post authored by Matthew Bey

I might not have made it to work today without the help of a few tech companies. My phone, which runs Google's Android operating system, woke me up. I then used it to watch the news through my Google Chromecast on a television set and home theater system that I bought from Amazon. Driving to work, I listened to music that I'd purchased from Apple Inc. while using Google Maps to navigate the pervasive congestion on the roads of Austin, Texas. The first thing I did at work was to check my Twitter and Google email accounts on an Apple MacBook (likely containing some components that Stratfor's IT department got from Amazon). And that was just the start of the day.

Of course, I'm part of a generation that depends on technology perhaps more than its predecessors do. But the reality is that a handful of tech companies have become so ubiquitous in our daily lives that their devices and algorithms are nearly inescapable. Each of the companies has become a juggernaut in its corners of the market, and their collective role in geopolitics has steadily grown to the point that it's now practically cliche to say that big data is the new oil. The comparison is apt, though. As it was for oil companies before them - and for steel companies before that - the growth of tech firms, and the effective monopolies they've established in certain areas, are concerns that Washington will eventually have to address. The only questions are when and how.

Spinning a Worldwide Web of Interests

Though the internet is likely the first thing that comes to mind at the mention of tech giants such as Amazon or Facebook, the worldwide web is but the tip of the iceberg for these companies. Innovation in the tech sector is relentless. Google, Apple, Facebook, Microsoft Corp. and Amazon - the world's five largest public companies by market capitalization - all rose to success by upending an established competitor with a game-changing platform, service or software. Within four years of launching its first search engine in 1998, Google had eclipsed Yahoo as the largest search engine. Facebook, likewise, quickly superseded Myspace as the dominant force in social media. As a result, the companies are acutely aware that they must stay on the leading edge of innovation or risk falling to an upstart competitor. The wealth of data they have at their disposal - in Google's search histories or Amazon's purchase records, for instance - isn't enough to maintain their competitive advantage since it can go stale in a matter of months.

To compensate, each company has staked claims in up-and-coming technologies, often by buying smaller firms on the trail of a breakthrough. Google has been at the forefront of artificial intelligence and neural networks to underpin its data processing. Apple, whose iPhone ecosystem must compete with Google's Android, has delved into autonomous systems. Amazon is now a leader in supply chain technologies, and it currently boasts the world's largest cloud computing service, though it is increasingly facing challenges from Microsoft Azure, IBM Cloud and Google Cloud Platform. So while Google is still a search engine company at heart, and Amazon an online marketplace and Apple a consumer hardware firm, their investments in new technologies are taking them farther afield from their core business. And they will probably continue in this vein as technology evolves, growing as technology companies in the most general sense by expanding their diverse network of business interests and with it, their prevalence in everyday life. After all, if they don't invest in the latest emerging technology, such as quantum computing, someone else will.

An employee from Microsoft demonstrates the company's new virtual reality headset at an event in May 2017.

In their quest to stay on the leading edge of technological innovation, the world's tech giants are constantly expanding their operations and trying to tap into new revenue streams, such as virtual reality.

(Drew Angerer/Getty Images)

Exercises in Trust

As the tech giants keep growing - Apple now has the value-added gross domestic product of a small country and its market capitalization may well reach $1 trillion someday - they will continue to dominate their industries. But their success could cause them trouble along the way. A company's sheer size isn't in itself a reason for a government to try to break it up. A monopoly, however, is. Of course, the major companies of the world today employ droves of lawyers to ensure that they are working within various jurisdictions' antitrust laws and regulations. Holding an effective monopoly, moreover, isn't necessarily a breach of these conventions. But the application of antitrust laws is largely left to the discretion of the political appointees who preside over a country's regulatory bodies. Even if a government doesn't have laws on the books to deal with a corporate colossus, it can always write and pass some, as the administrations of presidents William Howard Taft, Theodore Roosevelt and Woodrow Wilson demonstrated. And though today's tech giants have yet to arouse widespread popular scorn, they're not out of the woods: It took the rail, steel and energy conglomerates several decades to become the object of public outrage and the target of legislation to dismantle their trusts.

So far the United States hasn't taken on the tech giants. The Federal Trade Commission (FTC) opted not to pursue action against Google following an investigation it conducted in 2012 that found the company's behavior had harmed "consumers and… innovation in the online search and advertising markets." The European Union, on the other hand, is taking a tougher approach. In June, Brussels levied a record $2.7 billion fine on Google in what could be the first of three antitrust suits the European Union files against the company. The difference between Washington's and Brussels' stances on the issue boils down to their diverging imperatives with regard to tech.

Silicon Valley has long dominated the technology sector. The advent of the smartphone confirmed its ascendancy, knocking European companies such as Ericsson and Nokia all but out of the competition after nearly two decades near the top of the mobile phone industry. Most European tech companies today can't keep up with their U.S. competitors, and those that can get bought up - as was the case with British artificial intelligence company DeepMind, which Google acquired in 2014. The European Union, then, has an interest in hemming in the U.S. tech giants to protect its own companies and to facilitate their growth down the line. Member states such as France and Italy have implemented more stringent rules over competition and personal privacy over the years and haven't hesitated to step in to protect their indigenous technology industries.

Staying on Top

For the United States, meanwhile, the benefits of the tech companies' rise outweigh the costs. The big five firms make up an indispensable portion of the U.S. economy. Furthermore, for all the steps Google has taken to discourage competition online - such as promoting its own shopping service in search results (the practice for which Brussels fined the company) - it has encouraged competition in other sectors. Take Chromecast, for example: By enabling users to stream content to their television or mobile devices, the product offers an alternative to traditional cable subscriptions and providers.

Google's hardware lineup has grown to include devices such as Wifi, Chromecast and Pixel.

Google has branched out from its origins as a search engine company to produce hardware, including Chromecast (second from left), which enables users to stream content on a television or mobile device.

(GLENN CHAPMAN/AFP/Getty Images)

More important, the United States has a strategic interest in keeping its position as the undisputed king of tech. The industry's innovations, including developments in 3-D printing and the internet of things, could spur a renaissance in the U.S. manufacturing sector. Amazon, Google, Microsoft, Apple and even Facebook are the driving forces behind these breakthroughs. If Washington were to crack down on the companies for antitrust violations, it would jeopardize growth in these strategic sectors and risk ceding the United States' dominance to other countries. Already, China's ambitious tech firms are starting to give their U.S. competitors a run for their money in certain areas, often drawing from the United States' deep pool of talent and research. Baidu, Google's Chinese counterpart, has its own artificial intelligence lab based in Silicon Valley run in large part by American executives with experience in the field.

Beyond the economic and strategic advantages that it confers, the United States' tech prowess has also proved a useful instrument of foreign policy at times. Much as Washington has used U.S. oil companies against Moscow, suspending their contracts with Russia through its sanctions regime and depriving Russian energy firms of expertise that would facilitate drilling in the Arctic Ocean, it has deployed its tech companies against Beijing. The United States' tech behemoths are instrumental to the negotiations underway over China's cybersecurity laws. Because the Chinese tech sector depends on foreign partnerships, the companies will have significant leeway in the discussions to relax the measures' application. (Back home, though, tension lingers between the leaders of the tech industry and the U.S. government over matters of intelligence gathering, privacy and surveillance.)

Pushing the Boundaries

Giving the tech sector broad latitude is in the U.S. government's best interest, at least for now. Washington may keep letting the industry's giants grow unchecked, so long as their priorities align with its own. The FTC may even permit the companies to establish monopolies in certain areas, provided they foster innovation in the process.

But that doesn't mean tech is invulnerable. At some point, the industry may finally reach the limits of Moore's law, which holds that the number of transistors in integrated circuits will double every couple of years. The relentless innovation in the tech sector would then abate, and the industry's growth would slow. Alternatively, the tech sector may eventually become oversaturated with various product lines. Once companies have explored all the new frontiers - some more profitable than others - they may have to lean more heavily on their core business to keep their stock prices up. Consumer sentiment could then turn on the big five firms, which by then probably would have amassed enough influence as non-state actors to threaten the government's interests. It is at that point that Washington likely would step in to apply existing antitrust legislation more rigorously or to draft new legislation to break up the companies along business segments. In the meantime, the United States will leave it to the European Union to take on the tech trusts.

"The U.S. Trusts in Technology" is republished with permission of Stratfor.

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