Pop quiz! Can you name a single new company in recent history with a market capitalisation of $10bn that exists beyond a bike ride of Berkeley, Stanford, NYU or Columbia University?
No? OK. Name an incredibly innovative digital disruptor coming out of Europe right now? How about a newly minted tech billionaire who has a French, German or British accent? No? Nothing? Not surprising. From 1990 to 1999, more market capital was created in companies located within a seven-mile radius of San Francisco Airport than in all of Europe since the Second World War.
The Economist has pointed out that of the world’s 176 largest platforms – online matchmakers that bring different customer groups together – only 27 are based in Europe. Europe’s platforms account for only 4% of total market capitalisation. That’s next to nothing. No wonder digital America has a new saying: America innovates, China copies (they call it "process innovation", of course). And Europe? Europe sues.
How best to police the platforms
Last week, the European Union lived up to its American reputation and said it would propose new copyright rules that will force Google to pay online publishers when using their content. It also said it would look at new rules to police how platforms such as Facebook and Amazon operate.
The EU believes Apple, Google, Amazon and Facebook – often dubbed the Four Horsemen of the Apocalypse – have so much power, they could kill European competition for good. Is it right? Hell yes.
The thing about platforms is the more people there are on them, the more people want to be on them. So monopolies with a lot of market power can grow up quickly. Right now, Facebook has more users than there are Catholics. More than the population of China. But, crucially, these digital platforms are different to standard monopolies because of pricing.
Facebook has more users than there are Catholics. More than the population of China.
In the case of Google and Facebook, they don’t charge consumers. When we are "transacting" with these platforms, we aren’t paying them money, we are giving them our data – but we don’t know what the terms of trade are.
What is a fair price for that data? We don’t know. And that is of concern to the regulators. But the even greater problem is that big platforms can use our data to become entrenched and dominate other markets too.
Just ask publishers and advertisers what they think about Facebook right now. The EU’s answer is that data should be portable – that other companies should be able to have access to some of that data in order to make the market more competitive and foster greater innovation.
Another problem is mergers. By using its vast reserves of cash to buy up competitors, Google takes out small start-ups that could quite quickly develop into something that might challenge it.
These challenger companies are typically too small to get above the threshold where regulators would take a look and say "this is anti-competition".
What is a fair price for that data? We don’t know. And that is of concern to the regulators.
These acquisitions have a name. They are called "shoot-out" acquisitions and a recent House of Lords report noted Google has recently made 187 of them.
Beware of unintended consequences
Now, the laissez-faire approach to big monopolies is to say, well, someone else will come along and take them out eventually. That’s not competition in the market but competition for the market – a challenger company that takes the place of Google or Facebook.
But it is also true that these platforms do offer enormous value to consumers and – let’s be honest – no-one in Europe has got even close to matching them yet.
It’s a chewy one. Any of the anti-trust rules that apply to non-platform businesses do not apply to platforms. Indeed, multi-sided markets are so new that no-one is completely sure how best to encourage them without stifling competition or forcing some other unintended consequence.
But in five or ten years’ time, things could get much, much "worse". Unfettered capitalism has a habit of eating itself, as the financial collapse of 2008 reminds us. If the EU does not act, the Four Horsemen could lay waste to European competition forever.
Andy Pemberton is a co-founder and director of Furthr