Today's giant tech firms are facing increasingly loud calls for government-mandated breakups, and thus an increasingly cloudy future, Barron's reports. As the political winds shift against them, Facebook Inc. (FB), Amazon.com Inc. (AMZN) and Google-parent Alphabet Inc. (GOOGL) may be headed down the same path as earlier tech leaders, such as Microsoft Corp. (MSFT), International Business Machines Corp. (IBM) and AT&T Inc. (T). Fighting off lawsuits that the U.S. government filed against them for alleged monopolistic practices in restraint of trade seems to have had negative impacts on IBM and Microsoft, whose shares have lagged the broad S&P 500 Index (SPX) in the years since these antitrust actions were brought (see chart below). 

Source: Barron's

From Revered to Reviled

Just a few years ago, tech giants such as Facebook, Amazon and Google were widely admired for the advances and conveniences that they had made possible. Now they are the subject of increasing skepticism and outright attacks, coming from across the political spectrum. Facebook and Google are taking heat for facilitating the dissemination of "fake news," for being enablers of foreign meddling in U.S. politics, and for news feeds and search results that allegedly are influenced by the political preferences of those firms. Amazon is drawing fire as an engine of job loss that is turning shopping malls into ghost towns. Facebook CEO Mark Zuckerberg recently drew public ire when he callously used the post-hurricane devastation in Puerto Rico as the backdrop for a virtual reality product demonstration. 

All three companies increasingly worry privacy advocates with their pervasive collection of personal data. Calls for fines, regulation or even outright breakup of these giants are growing. Google already has been fined the equivalent of $2.8 billion by European regulators for favoring its own comparison shopping service in search results. (For more, see also: 5 Big Tech Stocks' Largest Threat May Be Uncle Sam.)

More Monopolistic Than AT&T

As for AT&T, prior to its government-instigated breakup in 1984, it held a virtual monopoly in the U.S. on telephone service and telephone equipment, and its Bell Labs division was one of the most renowned industrial R&D organizations in the world. In 2005, one of the local operating phone companies spun off in 1984, SBC Communications Inc., formerly Southwestern Bell, acquired the battered remains of its old parent, and renamed itself AT&T.

The pre-1984 AT&T employed over one million people and operated in an era when landline phones were the backbone of communications, before the commercialization of cellphones (a technology that it had developed), and before public internet. Nonetheless, venture capitalist Bill Maris, formerly the CEO of Google Ventures, believes that Facebook and Google exert more control over their markets today than did AT&T in its prime, Barron's says. As a result, he would not be surprised at all by a government-ordered breakup of today's tech behemoths.

Distracted by Antitrust

Before the age of personal computers, IBM dominated the market for mainframes. Barron's believes that the federal antitrust suit launched in 1969 distracted management for years, and possibly opened the door for nimbler upstarts such as Apple Inc. (AAPL) to assume leading positions in the new market for PCs.

The U.S. Department of Justice (DOJ) sued Microsoft in 1998 for attempting to leverage its near-monopoly in PC operating systems into a monopoly in web browsers as well. The suit alleged that, giving its Internet Explorer browser away for free to purchasers of its Windows operating system, Microsoft's intent was to drive rival browser company Netscape out of business. A judge ruled that Microsoft should be broken up, but this was overturned on appeal. Nevertheless, rival software developers Oracle Corp. (ORCL) and SAP SE (SAP) were among the competitors that outperformed it subsequently, as the chart indicates. (For related reading, see: Slumping FANG Stocks Losing Their Luster.)

Echoes of the Microsoft Suit

Google was founded in the year of the suit against Microsoft, Barron's notes, adding that its development of Gmail and Android, as well as Apple's launch of the iPhone, would diminish the importance of the PC and Microsoft Windows. Meanwhile, echoing the case against Microsoft, Alphabet is the subject of antitrust action in Europe alleging that it is restraining trade by bundling its Google search engine with its Android operating system for mobile devices. Allegations also are being made, per Barron's, that Amazon's Echo speakers and Prime membership are being priced at or under cost in an attempt to win yet more shopping customers, eliminating yet more retailers in the process.

 

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