By Nick Colas of DataTrek

Ben Evans is out with 2 pieces on the future of Tech industry regulation. His take is that effective rulemaking is a matter of getting into the weeds (as Europe has done) and breaking up US Big Tech is unlikely to fundamentally damage Google or Facebook. Our take: Ben’s right, and his view explains why markets discount any chance of dramatic/damaging regulatory action.

Ex-Andreessen Horowitz staffer Ben Evans had two recent tech thought pieces with overlapping themes. Here’s a brief summary of each and a few thoughts of our own.

#1: “Regulating technology”

  • “… when software becomes part of society, all of society’s problems get expressed in software…” and “… When something is systematically important to society and has systematically important problems, this brings attention from governments and regulators.”

  • Regulations, however, typically address specific issues, not “industries”. Car companies must install seat belts, but automakers aren’t liable if one of their vehicles is used in a robbery, for example.

  • This makes “regulating technology” a complex matter because it is very situation/concern specific and, on top of that, no two countries think the same way about important issues like freedom of speech or privacy.

The bottom line: tech will certainly see more regulation in the coming decades, but history says it will be based on specific issues and geographies rather than blanket policy.

#2: “Would breaking up ‘big tech’ work? What would?”

  • The network effects so common in Big Tech are essentially natural monopolies.

  • You need a large user base to support more than one natural tech “monopoly”. In global smartphones, for example, there are just 2 operating systems at present: iOS and Android.

  • Breaking up Facebook or Google would do little to eliminate the global network effects of Facebook, Instagram, Google search or YouTube.

  • European regulators are addressing Big Tech’s power by proposing very specific business requirements (e.g. Google sharing its click and query data to third party search engines to help them improve their algorithms) rather than pushing for break-ups.

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Bottom line: in the end, technology is often self-regulating when it comes to monopolies because something new always comes along. Microsoft, the subject of so much breakup chatter 20 years ago, missed mobile telephony and smartphones. It’s still a huge company by market cap, but no one thinks it is an impediment to competition anymore.

Some thoughts on Ben’s commentaries:

#1: They are good reminders of just how slowly regulatory frameworks develop and how far these will always lag behind disruptive innovation. It took 70 years for seat belts to become mandatory standard equipment on cars; the US law governing their installation passed in 1968, for example. Regulating current technology may not take that long, but Silicon Valley will always move faster than Capitol Hill.

#2: The only effective way to regulate Big Tech will be for lawmakers to go into the weeds, find solutions to specific problems, and enact legislation. Europe did this with measures like GDPR, but it is unclear if Congress has the staying power or attention span for such work.

#3: Breakups would do little to curtail the competitive moats of companies like Google or Facebook. Their assets have natural advantages because of network effects. As noted in the second piece, Microsoft Office was a stand-alone asset in the 1990s and is still relevant today because network effects can have very long tails.

Summing up: as much as US Big Tech will face regulatory issues for many years, Ben’s work is a good reminder that the actual problems are extremely complex and do not lend themselves to easy (and stock price-unfriendly) solutions.

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Regulating technology:

Would breaking up big tech work? What would?:

Via Zerohedge