'Big tech' and corporate governance

Criticism on large technology platforms is common.

Thomas Osborne
Thomas Osborne
07 December 2022 Wednesday 16:43
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'Big tech' and corporate governance

Criticism on large technology platforms is common. One of the reasons is data control and another, the monopoly power that they can exercise as gatekeepers, controlling access to users through the platform. That is why the European Union has introduced a digital markets law to regulate them. Its great benefits and capitalization are also in the spotlight. The big five, Apple, Microsoft, Alphabet (Google), Amazon and Meta (formerly Facebook), account for 20% of the capitalization of the S index

Meta, in the hands of Mark Zuckerberg, has had somewhat erratic management, with Facebook losing followers and ultimately betting on the metaverse, despite investor reluctance. Amazon has invested a lot, perhaps excessively, in electronic commerce and saves results thanks to its powerful business in the cloud (cloud). Google uses profitable online advertising to try to compete in the cloud and develop new products. Microsoft soon understood that the cloud was the future and diversified the business, while Apple has maintained product innovation and the integration of hardware and software as its flagship, revolutionizing the digital world with the iPhone. Tesla has led the development of the electric car and Uber, private transportation services (taxi).

There are many factors that can explain the diverse behavior of the platforms. The type of business (social network, online advertising, electronic commerce, hardware and software) determines the importance of network effects, barriers to entry into the sector and dependence on the platforms of the business's own competitors. Also noteworthy is the fact that data acquisition feeds back by allowing and incentivizing the acquisition of more data to refine algorithms and stay ahead of the competition. We must add the growing rivalry between platforms, one entering the main business of the other.

There is another factor to highlight: the quality of corporate governance. In several digital businesses, the founders still control the company with voting rights above their shareholding. This is the case of Meta, where Zuckerberg controls 54% of the voting rights; from Alphabet, where the founders control more than half, and from Amazon, where Jeff Bezos controls about 15%. Elon Musk owns about 14% of Tesla's shares (not counting call options). Neither in Microsoft nor in Apple does this concentration of control exist, precisely the companies that are having relatively better results. It can be thought that the discipline of the capital markets has helped them to better manage the company and to make the visions of the founders come true.

A visionary founder has to know when to leave the helm and proper corporate governance will prevent him from staying when he is no longer good for the company. Cases like that of Uber show the reputational cost that bad practices in corporate governance have for a company. Pay attention to how Musk's troubled purchase of Twitter ends.