Hi, all. It's Shira. As U.S. anti-monopoly authorities investigate the power of America's technology superpowers, there is one advantage the government will struggle to unravel: the size, scale and might of the tech giants' computer networks, logistics machines and other infrastructure.
This week, my Bloomberg colleague Gerrit De Vynck wrote about the irony of the last decade of flourishing tech startups. Many of the upstarts might not exist without the computing horsepower of Amazon Web Services, the vehicle-routing backbone of Google Maps or customer acquisition via Facebook Inc. Younger companies such as Lyft Inc. are both a challenge to supremacy of the U.S. tech powers, and heavily reliant on those giants' products.
The word "moat" is overused jargon for companies' unique advantages that keep them ahead of competitors. But the story was a reminder that the five biggest U.S. technology companies have a heck of a moat in the form of their physical infrastructure – everything from Amazon's package centers and delivery airplanes, to Google's sophisticated computer data centers connected by private fiber-optic cables.
Also this week, Recode had a glimpse at anxiety inside Walmart Inc. about its e-commerce business, and the costs of keeping up with Amazon.com Inc. The news outlet reported that Walmart's e-commerce chief has pressed to spend more to expand what is at most 20 U.S. warehouses that handle the company's online orders, compared with Amazon's more than 100 U.S. package centers.
If a company the size of Walmart – which sells about half a trillion dollars worth of merchandise each year versus Amazon's roughly $300 billion – has trouble justifying bulking up its warehouse network to Amazon scale, then what competitor can possibly do so?
It's not only the size and scope of Amazon's logistics operation that gives it a leg up. Amazon is not shy about touting what it says is the technological supremacy of its package stowing and sorting centers. An executive recently told the Financial Times that computerized scanners and cameras in more than 20 Amazon warehouses are making it easier to track and retrieve items.
Amazon isn't alone in widening its moat. Last week, Alphabet Inc.'s Google announced the latest privately funded undersea cable between Europe and Africa. That kind of infrastructure used to be built by consortia of telecommunications providers, but it has become common for Facebook, Microsoft Corp. and Google to go their own way. This year, Google has said it will spend more than $13 billion just in the U.S. on data centers and other real estate.
In the last 12 months, the five biggest U.S. technology companies recorded nearly $90 billion of combined capital spending – big-ticket items such as data centers, internet cables, specialized equipment to build computer chips, warehouses and other real estate. The figure has more than doubled since 2015, according to data compiled by Bloomberg. It's fair to say that $90 billion buys a lot of moats. There's probably an Alphabet "moonshot" project somewhere to dig literal moats.
This kind of advantage for the tech giants is hard to grasp for someone surfing YouTube or placing their third order this month with Amazon. For antitrust enforcers and lawmakers, this may be even more daunting.
Yes, the government broke up AT&T in the 1980s. It ran a national telecom network that dwarfed all others. But it carried mostly voice traffic. Nowadays, there are so many more important things that rely on the status quo of the internet and the small group of companies that dominate it: most forms of communication, information distribution, commerce, personal finance, and an increasing amount of corporate data and workloads.
All those built-up moats give big tech companies the kind of lead that seems far beyond the reach of antitrust cops. --Shira Ovide
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