“Big Tech” Is Not Immune to Creative Destruction

January 7, 2022

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America’s big five tech firms—Apple, Google, Amazon, Microsoft, and Facebook—often seem invincible, destined to become ever-more powerful as the digital world continually expands. That’s why many policymakers on the left and the right argue that only antitrust action or other significant government interventions can protect consumers and restore a competitive marketplace. 

But history shows that technology leadership is fleeting. While antitrust actions against one-time market leaders such as IBM and AT&T forced a shakeup in their respective markets, they also undermined U.S. global competitiveness, especially in telecommunications where foreign companies stepped in and captured significant market share. However, in both antitrust cases—and also with Microsoft’s—market forces were the main drivers of innovation and change. Odds are, this is still the case today.

Consider Amazon. Many Washington politicians and pundits argue that its retail and cloud computing services—and possibly its media, credit card, branded products, and other businesses—should be broken up into separate companies. But such drastic and inevitably prolonged and debilitating interventions are not necessary. There are at least five other plausible scenarios that could significantly disrupt Amazon’s business model over the course of the 2020s.

1. New technology. Major advances in technology have always been the most powerful disruptive force. Just look at how past retail leaders like Sears, Roebuck & Co., and Walmart were disrupted by new firms with new, technology-driven business models. Looking ahead, there is no guarantee that Amazon—or America—will be the leader in artificial intelligence, quantum computing, machine-to-machine architectures, AR/VR, or other emerging areas. Similarly, software innovations that directly connect consumers, suppliers, and delivery services could potentially obsolete Amazon’s massive investment in automated warehouses.

2. The rise of China. Most large retailers, including Amazon, are highly dependent upon imports from China. Given today’s trade tensions, it’s not hard to imagine a scenario where consumers around the world are told: “Sorry, that exercise bike is not available from Amazon at this time, but it’s available right now from Alibaba.” Alibaba will also be an aggressive cloud computing provider in many countries.

3. Bringing work back in-house. As their spending on cloud computing and software-as-service rises, many large organizations will consider moving some work back in-house. Likewise, if global supply chains remain tight, leading consumer product firms might well choose to sell their offerings directly to keep as much revenue in-house as possible. 

4. Environmental pressures. Amazon’s e-commerce model relies heavily on vast fleets of delivery vehicles and durable product packaging. And while overall e-commerce has a smaller environmental footprint than most brick-and-mortar stores, the widespread perception is the opposite. This could make the company vulnerable to new regulations, or changes in consumer behavior or preferences.

5. Cultural inertia. Previous industry leaders all too often have become complacent or arrogant. Sometimes they also have failed to sustain their cultures and customer focus once the founding generations retire and new employees rely more on high salaries and bonuses than rapidly rising share prices. Such firms have often been incapable of adjusting to change and averse to disrupting themselves.

These five scenarios are not predictions, merely plausible developments that could unfold. Neither are they in any way a criticism of Amazon, whose accomplishments have been extraordinary and whose services are greatly valued by its customers, especially during the pandemic. Indeed, some pressures—such as new technologies and environmental demands—could be major opportunities for Amazon’s continued growth.

But the existence of numerous and entirely plausible disruptive scenarios suggests that major actions against today’s big tech firms are not warranted. As new technologies proliferate, competition with China intensifies, customers seek to protect their interests, environmental challenges grow in importance, and firms struggle to sustain the cultures that made them great in the first place, the digital world is still ripe for creative destruction. This is no time to deliberately weaken America’s strongest and most competitive firms.