By Pradeep Khurana, Managing Director of ContinuServe. ContinuServe is a global business process outsourcing firm, which helps corporations and private equity firms with their IT, Finance, and carve-out needs. More information at www.continuserve.com.
There has been some antitrust discussion around big tech companies. Due to a variety of reasons, Congress has had some issues with Big Tech companies like Apple, Google, and Facebook. In general, Republicans are concerned about liberal media bias; while Democrats are more concerned about anti-competitive, monopolistic behaviors. This is on top of the recent discussions of President Trump trying to require ByteDance to separate TikTok US from the rest of TikTok due to fears of Chinese government influence. This separation of companies is highly political, but it is also quite technically and operationally complex.
In general, separating Apple, Google, and Facebook could be a way to provide more competition to their respective markets. For example, perhaps Apple might separate the iTunes store from the Apple devices. Perhaps Google might separate its YouTube or Android handset division from the core Google Search business. Perhaps Facebook would be required to roll back some of its large acquisitions like short-format video company Instagram or secure messaging business WhatsApp.
There are several ways for the separation to occur. One option is for the parent company to spin off the underlying unit (e.g. Facebook could spin-off Instagram into a separate public company). Another option is for Facebook to sell Instagram to another less-dominant media company like Disney or Triller. Another option is for Facebook to sell Instagram to a consortium of private equity firms, although it would be a very large transaction.
In theory, separating the businesses would create more competition and would perhaps allow users to have more choice. Separating the businesses might allow some other companies to start innovating new services and allow more favorable terms to customers. For example, if there is more choice within the social media market, perhaps the companies might compete for users with either lower prices or improved user security and privacy policies. With more competition, it would be easier for smaller startups to gain some traction without fear of being crushed by the existing large players.
Putting the politics aside, it might be very disruptive and challenging for these companies to separate. For example, YouTube was bought by Google over a decade ago. Over that time YouTube has turned into one of the largest online video sites. YouTube is also likely very tightly integrated with Google Search. YouTube probably shares some Google real estate locations, shares some back-office IT and finance and accounting. Some of the ad sales teams are likely shared between multiple Google product lines. Some data centers and infrastructure employees may be shared. There also may need to be some software and legal separations required. For example, perhaps there is some software code that optimizes search and YouTube. With a separation, some of this code may need to be replaced.
For Facebook, if they need to separate or carve out Instagram or WhatsApp, they may have to separate links and user data. Instagram video feeds often are also shown on Facebook. Also when advertisers buy on Facebook, they can advertise on Instagram. Requiring a very quick separation may be very expensive in terms of consultants, advisors, attorneys, and accountants to make sure there is a smooth transition.
These tech giants and the underlying units are very large, but the actual carveout or spinout of these units will still generate large underlying companies. They have large teams in place, but they may need to hire additional staff and consultants so the new companies can run independently of the parent. There is also a possibility that the smaller units would be sold to a different, less dominant, strategic buyer, in which case some of the back-office services could be provided by the new buyer. It is likely that Google, Facebook, and Apple are starting to consult their technical, legal, and consulting advisors on various separation scenarios.
It will be very interesting to see how this carveout transaction plays out as it will lead to changes throughout the tech ecosystem. The existence of Big Tech has pros and cons. Big Tech is able to invest large amounts of R&D to develop new services and provide enterprise grade solutions. Unfortunately, un-checked, Big Tech also becomes a very powerful owner of individual data and an arbiter of media truth. The high profit margins of Big Tech provides some preview of their ability to perhaps generate “excess profits” due to their monopoly positions.
— Published on October 09, 2020