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Axios Login special series: How tech competes

National

As tech changed the world, it also changed the meaning of the word "competition." 

How it works: In most other businesses, competition means several rivals are fighting to win a prize — typically, the customer's dollar. 

To win that competition, a company might offer a better product, a lower price, or some magic brand aura people crave.

In the tech world, quality is often hard for users to gauge, prices for many consumer offerings are zero, and very few brands have had time to build auras.

Most tech companies still view themselves as engaged in fierce competition. They're just going after a wider and more complex set of prizes.

Sometime's it's scale. Sometimes it's owning a standard. Sometimes it's seizing the moment to set the course of the next technological wave or dominant platform. 

Sometimes it's just earning a big payout for founders and investors at the right moment. And sometimes, the winner does end up with a monopoly -- but no tech firm expects that to last long.

This different understanding of competition explains the deep mindset mismatch at the heart of today's epic struggle between Silicon Valley and Washington, D.C. 

The view from the tech corner office sees an industry in a state of constant churn and paranoia, perpetually hungry for new products and afraid that some newcomer will eat their lunch.

The view from the Beltway, and from many homes and small businesses outside tech, sees a handful of giants with strangleholds over key markets. 

Why it matters: Whether you view the tech industry as competitive shapes whether you think tech giants need to be regulated or broken up.

The enormity and power of just five companies — Apple, Google, Microsoft, Amazon and Meta —have triggered the loudest monopoly alarms since the trustbusters broke up Standard Oil a century ago.

Catch up quick: Tech's history is a serial record of successive monopolies.

In the IBM age, one company ruled the mainframes that ran big business and government.

In the Microsoft age, one company ruled the personal computer operating system, and for a while the web browser, through which individuals worked.

These companies' stories established the industry's psychic underpinning: A belief that, as Intel CEO Andy Grove put it, "Only the paranoid survive." 

You had to scan the horizon for the next paradigm shift or new platform so you could control it. Otherwise, your competitive advantage would erode and your dominance would fall to a nimbler upstart.

Yes, but: In the 21st century, tech's shape has changed.

In the past two decades, five companies — Apple, Microsoft, Google, Amazon and Facebook/Meta —have seized the industry's reins and held onto them with a persistence and strength that shows no sign of waning.

Their combined market value has hovered between $7 and $10 trillion for the last two years — roughly 23% of the value of the entire S&P 500.

Their products — the smartphones that have become our outboard brains, the key apps we use every day, the services that we use to work and shop and get around — shape our lives.

Be smart: The question regulators and critics keep asking today is whether these companies are entrenched in an unfair way that blocks new entrants and ideas.

This view — held by the leaders of the Biden administration's tech policy crew, such as Federal Trade Commission chair Lina Khan and White House adviser Tim Wu — sees today's tech landscape as a market failure.

The giants, they say, have created self-perpetuating monopolies in specific markets like search, mobile app distribution, online advertising, e-commerce, and social networking. They run must-use platforms that unfairly advantage their own products. They shoot down new rivals if they can, and buy them if they can't.

The bottom line: If these critics are right, then lawsuits and new regulations are needed to restore competition.

But tech's leaders argue that their competitive advantages edges are fragile and evanescent. 

The way they see it, the five-way scrum of today's overall tech market means there's always some amount of consumer choice and  product improvement. 

1. Tech's competition game change

Where Washington sees entrenched power, tech's leaders see threats and danger everywhere.

Illustration of an abstract collage of hands on computer keyboards, stars and other shapes.

Competition

Big Tech

Tech Regulation

Emerging Tech

As tech changed the world, it also changed the meaning of the word &quot;competition.&quot; How it works: In most other businesses, competition means several rivals are fighting to win a prize — typically, the customer&#x27;s dollar.

From the Valley to D.C., Big Tech players like Facebook, Google and Amazon are under more scrutiny than ever as new technology develops and privacy and antitrust concerns grow in lockstep with companies’ ambitions.

Technology

Most Americans can choose among several providers of home internet service, but that competition masks their much more limited options for true high-speed connections, advocates say.

The big picture: Home internet connections became even more essential during   the pandemic, but there's still wide disagreement among trade groups, consumer advocates and government agencies about the extent of competition in the broadband market. 

State of play: According to the most recent data from the Federal Communications Commission, more than 97% of Americans currently have access to home internet service from three or more providers at speeds of  25/3 Mbps. (The first number represents download speed, and the second is for upload.)

That speed is the FCC's current benchmark for broadband internet service. But there's growing consensus that it is not fast enough to meet today's digital demands.

FCC Chairwoman Jessica Rosenworcel wants to raise the standard to 100/20 Mbps.

According to the FCC's data, nearly 30% of Americans now have access to three or more providers at speeds of 100/10 Mbps, and almost 40% can buy service at that speed from two companies.

Of note: The FCC's figures include satellite internet and fixed wireless service providers. 

Those options have historically been the choice of last resort in difficult-to-serve rural locations. They have a reputation for occasional sluggishness and unreliability, although the technology is changing.

The FCC's data shows that only about 56% of Americans have access to a wired home internet connection — fiber, cable or ADSL (which uses copper telephone wires) — from two or more providers at speeds of 25/3 Mbps. 

Only 11% of Americans have three or more options for a wired connection at that speed.

What they're saying: "Even three is really not sufficient," Angie Kronenberg, chief advocate and general counsel for competitive network trade group INCOMPAS, told Axios. "You typically need four or more in order for there to be really robust competition, where you see the companies really competing against each other on price, on customer service."

"You cannot say there is nationwide competition in every household for broadband," Jonathan Schwantes, senior policy counsel for Consumer Reports, told Axios. "It's just not true."

A Consumer Reports survey in 2021 found that 26% of Americans said they had one choice for a wired home internet connection, 32% said there were two providers, and 16% said they had three options.

The survey also found the cost of home internet decreases based on the number of providers.

The median cost of broadband service was $75 per month for Americans who say they have only one choice of provider,  while those with four or more options pay a median of $67 per month, according to the study.

The other side: Trade associations for telecom and cable companies say competition has increased in the broadband industry as companies have invested billions into their networks.

Cable trade group NCTA pointed to FCC data that shows that the percentage of Americans who can buy service from multiple providers at speeds of 100/10 Mbps nearly tripled between 2016 and 2020.

USTelecom, another trade association, says prices have declined, speeds have increased and companies are continuing to invest in their networks  — all hallmarks of a competitive industry.

"As we ramp up our deployment schedule to include tens of millions of more households with fiber,  competition will be in parallel increasing as we do so," USTelecom president Jonathan Spalter told Axios.

Between the lines: Improvements in technology are making fixed wireless, which delivers a high-speed connection to the home using wireless networks, more of a competitive threat.

Verizon and T-Mobile are offering 5G home internet service as an alternative to a wired connection, while newer entrants like Starry are also offering fixed wireless as their main product.

The wireless companies added about 815,000 subscribers in this year's second quarter, while the largest cable companies lost subscribers, according to a report from Leichtman Research Group.

Meanwhile, SpaceX satellite internet service Starlink promises internet service in rural parts of the country at far greater speeds than in previous generations of satellite internet.

But the FCC questioned whether the service can deliver those speeds and denied the company nearly $900 million in funding to build out service to rural America.

"I view wireless and satellite as potential opportunities, but they do have constraints," Kronenberg, of INCOMPAS, told Axios. "Whether or not they can really compete head to head against cable, who's going to offer higher speeds and the fiber to the home providers, who can definitely offer higher speeds — I think it's a big question mark."

What's next: The Infrastructure Investment and Jobs Act provides $42.5 billion in funding to build internet networks at speeds of 100/20 Mbps.

Consumer Reports' Schwantes predicts the biggest threat to competition will be in areas where the existing provider, or incumbent, challenges a funding award to a new company willing to build in the area.

"Will these areas be held captive by the incumbent ISPs that have not served this market, but claim they're going to, in a cynical way to prevent competition?" Schwantes asked.

2. Goalposts moving on broadband competition

The industry sees healthy competition, but advocates say too many Americans still don't have much choice in real broadband.

Illustration of two ethernet cables with abstract wifi bars and starbursts.

Broadband

Most Americans can choose among several providers of home internet service, but that competition masks their much more limited options for true high-speed connections, advocates say.The big picture: Home internet connections became even more essential during the pandemic, but there&#x27;s still wide disagreement among trade groups, consumer advocates and government agencies about the extent of competition in the broadband market.

Axios AI+

The best way to understand the ways that Big Tech companies do and don't compete with one another is to use the old Watergate adage: Follow the money.

Why it matters: How Apple, Google, Facebook, Amazon and Microsoft make their revenue today shapes the battles they will fight tomorrow.

The big picture: For years, the largest tech companies each had their own fiefdom where they garnered the lion's share of revenue and profits.

While tech companies competed at the edges, the market was big enough that each had plenty of green fields to expand into. They might step on each other's toes, but they took pains — and sometimes struck deals — to steer clear of the others' core businesses.

Yes, but: As they have each become enormous, their search for growth has begun leading them onto one another's turf. 

Amazon and Apple, for example, are getting more revenue than ever from advertising — the heart of Google's and Facebook's business.

 Google is investing heavily to catch Amazon and Microsoft in cloud computing.

Microsoft, Google and Facebook each have their feet in different parts of the gaming market, with Apple and Amazon dabbling too.

Amazon, Apple and Google each operate major subscription streaming services. 

All five are investing heavily in AR/VR hardware and systems. 

And all of them see AI as central to their future.

Be smart: Like wealthy families that have run a town for decades, these companies share a vast web of dependencies and grudges — as in the recent privacy war between Facebook and Apple, or Apple's slow and steady effort to wrest the mobile maps market out of Google's control.

Here's what you find when you "follow the money" for each of tech's Big 5:

Hardware — mostly phones and computers — still generates the bulk of Apple's sales and makes the company's other businesses possible. But the company has significantly diversified its revenue in recent years.

By the numbers: Apple reported $365 billion in revenue during its past fiscal year, which ended in October. Of that, more than half ($191 billion) came from iPhone sales, while the Mac, iPad and Apple's accessories business each generated more than $30 billion in revenue. Services — which for Apple means everything from extended warranties to music and TV subscriptions — accounted for $68.4 billion, up 27% from the prior year.

Emerging businesses: Advertising and services, including financial services (Apple Pay)

Competitive concerns: Apple sets the terms for the iPhone and yet it is also a competitor in areas ranging from subscription music to consumer cloud storage. It also has some enormous deals with rivals, such as the agreement that makes Google the default search engine on iPhones and Macs — and generates billions for Apple.

For all its talk of the metaverse, the social networking giant still gets nearly all its revenue from ads on Facebook and Instagram. Those cash cows have proven vulnerable thanks to the constraints of the operating systems they run on — most importantly, when changes Apple made to tracking significantly dented Facebook's mobile revenue.

By the numbers: Meta reported nearly $118 billion in revenue for the 12 months ending Dec. 31. Of that, almost $115 billion was ad revenue related to its core apps. It had about $700 million in non-advertising revenue for its family of apps and $2.2 billion in revenue from Reality Labs, which includes its Oculus VR unit.

Core business: Digital advertising, social media

Emerging businesses: VR hardware, digital goods

Competitive concerns: With Facebook, Instagram and WhatsApp, Meta controls a huge chunk of the social networking market and, with it, a big slice of overall online advertising.

Google is rightly described as "the search giant," but its ambitions extend into the kinds of cloud computing offered by Amazon and Microsoft. And, while it doesn't charge directly for Android, it generates a significant amount of its ad revenue from mobile devices. 

By the numbers: Parent company Alphabet reported $161 billion in revenue for the year ended Dec. 31. Nearly all of that came from what the company lumps into Google Services — chiefly search and display advertising, as well as smaller revenue sources, such as hardware. Also within Google Services: YouTube, which generated $28.8 billion in ad revenue; Google Cloud, with about $8.9 billion revenue; "other bets," such as autonomous vehicle division Waymo, that bring in a few hundred million dollars.. 

Emerging businesses: Enterprise software, cloud computing, consumer hardware

Competitive concerns: Alphabet's hold on the search market lets it determine which services live and die through tweaks to its algorithm. How it treats its own content has been a point of concern for years, while it has also been criticized for the rules governing Android and the Play Store app marketplace.

The online retail giant also has an omnivorous appetite for other kinds of businesses, including its massive web services arm as well as offline groceries (via Whole Foods), video and audio content, ebooks, prescription drugs and medical services. And any time Amazon enters a business, it brings the enormous power of its distribution network and access to hundreds of millions of Prime subscribers.

By the numbers: Amazon reported more than $469 billion in revenue for the year ending Dec. 31. Most of that comes from the sale of physical goods, though it also includes digital goods and subscription revenue. About $62 billion came from its Amazon Web Services cloud computing business, a 37% increase from the prior year. 

Core businesses: Online retail, web services

Emerging businesses: Advertising, physical retail, health care

Competitive concerns: Amazon has been able to grow by constantly taking on new markets — but also, critics and now regulators charge, by privileging its own offerings on its larger platform marketplace. Today the company is so large that it sparks monopoly fears even when it enters a previously competitive market as a small player.

The dominant giant of the desktop era still casts a long shadow over the tech world, with massive revenue streams rooted both in its venerable Windows and Office products as well as a highly successful newer business line in cloud services.

By the numbers: Microsoft reported just shy of $200 billion in revenue for the fiscal year ending June 30.  While Office and Windows are still huge money makers, the company also gets significant revenue from Azure and other cloud offerings.

Core businesses: Windows, Office and other business software; cloud services

Emerging businesses: Surface and other devices, cloud gaming

Competitive concerns: Microsoft is no longer a major target for antitrust enforcers, but Windows still controls a huge part of the PC market, and Microsoft's choice of which apps and services are installed by default is still enormously consequential. The company has faced new complaints this year over cloud computing. Just this week it agreed to make changes in how it licenses cloud products in Europe to address complaints there.

Competition among these companies is increasingly a global affair, as the search for growth draws them onto terrain outside the U.S. where they face big challenges based on culture, language and economics. 

At the same time, the rise of tensions between China and the U.S. gives all these U.S.-based companies a nationalist card to play when regulators threaten action to rein in their power: Hurt us, they argue, and you'll hurt America. 

3. To trace Big Tech competition, follow the money

Where Apple, Google, Amazon, Facebook and Microsoft get their money shapes their conflicts.

The best way to understand the ways that Big Tech companies do and don&#x27;t <a class="gtmContentClick" data-vars-link-text="compete with one another" data-vars-click-url="https://www.axios.com/2022/08/29/tech-competition-game-change-monopolies" data-vars-content-id="95f34590-c50c-45e9-a980-235b1ffb9d4b" data-vars-headline="To trace Big Tech competition, follow the money" data-vars-event-category="story" data-vars-sub-category="story" data-vars-item="in_content_link" href="https://www.axios.com/2022/08/29/tech-competition-game-change-monopolies" target="_self">compete with one another</a> is to use the old Watergate adage: Follow the money.Why it matters: How Apple, Google, Facebook, Amazon and Microsoft make their revenue today shapes the battles they will fight tomorrow.

6. Gaming's biggest players have moved past competing with one another