Big Tech Has Dug a Moat That Rivals and Regulators Can’t Cross
(Bloomberg Opinion) -- As U.S. anti-monopoly authorities weigh possible investigations into America’s technology superpowers, there is one advantage the government can’t touch: the size, scale and might of the tech giants’ computer networks, logistics machines and other infrastructure.
This week, Bloomberg News wrote about the irony of the last decade of flourishing technology 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 through ads on Facebook Inc. Younger companies such as Lyft Inc. are both a challenge to supremacy of the U.S. tech powers and heavily reliant on their products.
The word “moat” is overused jargon for companies’ unique advantages that let them stay ahead of competitors. But the article 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 and privately built undersea internet cables.
Also this week, Recode offered a glimpse of 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 globally each year compared with Amazon’s roughly $300 billion — has trouble justifying bulking up its warehouse network to Amazon’s 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 trumpeting 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. (It’s worth re-reading this Ben Evans piece about the PR advantage the notoriously secretive Amazon gets from talking about its logistics prowess.)
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. (All that sophisticated computing infrastructure isn’t infallible. Facebook confirmed on Wednesday that people were having problem with videos and photos on Facebook and Instagram.)
In the last 12 months, the five biggest U.S. technology companies recorded nearly $90 billion of combined capital spending — big-ticket item such as computer data centers, internet cables, specialized equipment to build computer chips, warehouses and other real estate. The figure has more than doubled since 2015, Bloomberg data show. 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 her third order this month from Amazon. But all those built-up moats give the companies the kind of lead that is far beyond the reach of antitrust cops.
My spending figures for Amazon and Microsoft include capital leases, and for Amazon the figures are net of incentive payments for property and equipment. Bloomberg's data on Apple capital spending may differ from the figures reported by the company.
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
Shira Ovide is a Bloomberg Opinion columnist covering technology. She previously was a reporter for the Wall Street Journal.
©2019 Bloomberg L.P.