Tech buying spree under scrutiny
Chief executives at big firms to testify before House panel
biggest U.S. technology companies have gone on a buying spree this year, waving off intense scrutiny from antitrust watchdogs and critics who say they’ve bolstered their power by snatching up nascent rivals.
The number of acquisitions by the five largest companies — Amazon.com, Apple, Alphabet’s Google, Facebook and Microsoft — came at the fastest pace through June since 2015, according to data compiled by Bloomberg.
Tech deals are accelerating even in the face of stepped-up antitrust scrutiny under the Trump administration. Federal officials are investigating Google, Facebook, Apple and Amazon for antitrust violations, and the Justice Department under Attorney General William Barr is expected to file a monopolization case against Google in the coming weeks. Google and Facebook are also contending with investigations by state attorneys general.
A House panel is also conducting an inquiry into the state of competition in the technology sector and the chief executives of Amazon, Facebook, Google and Apple are all scheduled to testify at a virtual hearing Wednesday.
Through June 30, the five companies announced 27 deals, according to Bloomberg data, up 29% from the same period last year, when they did 21 deals.
Amazon said its deal volume as a percentage of revenue is low compared to that of many other companies and noted that it’s primarily expanding the business internally, rather than through acquisitions. Spokespeople for the other companies declined to comment.
The speeding up of tech deals could give ammunition
to economists, lawyers and lawmakers who warn that the tech companies have used their abundant cash to gain leverage over existing competitors and increase already high market shares.
“Until there’s some enforcement in this area, companies are likely to think they can get away with it, and if they can get away it, they’re likely to try,” said New York University law professor Scott Hemphill, who has written about deals that eliminate emerging competitors.
CONCERNS FOR STARTUPS
An even bigger worry is that the tech companies are potentially choking off competition by acquiring firms that, while small, could one day emerge as robust rivals. After all, the tech giants were all startups once.
This year’s transactions include Facebook’s $400 million purchase of Giphy, a library of video clips and animated images; Amazon’s pending bid for autonomous vehicle startup Zoox; and Apple’s acquisition of weather app Dark Sky.
Values weren’t disclosed in most cases, making it impossible to know precisely how much money the companies are spending. Amazon, for example, agreed to pay more than $1 billion for Zoox, according to digital media company The Information, but didn’t disclose terms to investors.
“Their regular practice is to vacuum up everybody in their space that could have emerged as a rival or may have been an alternative in some fashion,” said Northeastern University economist John Kwoka, who studies merger enforcement.
In February, the Federal Trade Commission said it would look back at tech deals by the five companies that closed between 2010 and 2019, but that weren’t reviewed because they fell below the revenue thresholds for reporting transactions.
Many tech deals have flown under the radar with slim or no review by competition regulators around the world, often because target companies have little or no revenue.
The big technology companies are even buying amid a world economy ravaged by the coronavirus pandemic. While global economic output is expected to shrink by 4.9% this year and bankruptcies and job losses are tearing through industries, tech companies are enjoying surging traffic and sales. Collectively, the five companies are sitting on more than $450 billion in cash and shortterm investments, positioning them to snap up targets that may be battered by the recession.
The increased attention contrasts with the mostly laissez-faire attitude U.S. competition watchdogs showed toward the tech companies’ past mergers. Out of hundreds of transactions in the past decade, says Kwoka, only one has been challenged: Google’s acquisition of flight-search software company ITA Software. The Justice Department approved the deal after Google agreed to a set of conditions.
WEDNESDAY’S HEARING
The congressional hearing Wednesday has been more than a year in the making.
Lawmakers have amassed 1.3 million documents, conducted hundreds of hours of interviews and held five other hearings featuring the industry’s friends and foes. Led by Rep. David N. Cicilline, D-R.I., the lawmakers plan to produce a report in the coming months that some party leaders expect will find that the industry has skirted federal competition laws because the protections haven’t kept pace with the digital age.
The hearing will feature CEO Jeff Bezos of Amazon, Tim Cook of Apple, Mark Zuckerberg of Facebook and Sundar Pichai of Alphabet, which owns Google.
All but Bezos have testified before Congress in the past, but they will do so this time under unique circumstances.
The coronavirus will keep those leaders on the West Coast, answering questions over videoconferencing software in what is perhaps a fitting coda to an investigation that has explored the myriad ways technology has transformed the world - for good and bad.
Some of the evidence lawmakers have amassed is set to be furnished publicly for the first time Wednesday.
Rep. Pramila Jayapal, DWash., one of the panel members who will question the companies, said a few of the documents evince a “copyacquire-kill” strategy on the part of big tech companies to buy or suppress potential rivals.
The Democratic lawmaker said the committee has seen some “very specific language from top-level executives about that,” but she declined to offer specifics.