SIMON BROWN: I’m chatting with Viv Govender, portfolio manager at Rand Swiss. Viv, I appreciate the early morning time. You and I have chatted about concerns around regulation in China – Alibaba, Ant Group, Tencent as well and the like.
Earlier this week a US judge dismissed a Federal Trade Commission antitrust complaint against Facebook, basically throwing it out of court. But there are others out there. We are seeing antitrust against Facebook, Google, Apple – both in the EU and the US. Is this something investors should have a concern about?
VIV GOVENDER: Most certainly. I think this is a trend with the big tech companies that has been building for some time but has kind of broken over the last year or so. We saw near the end of Donald Trump’s presidency that he was really, really against the big tech companies, even banned from Twitter eventually.
But we forget that the Democrats have historically been anti-big business and we see a new FTC (Federal Trade Commission) head. A very young lady, I think she’s in her early thirties, who pointed to Ms. Lina Khan. She pretty much philosophically seems to be anti-big tech, not in the case of like a particular free-speech kind of argument it’s just that she doesn’t like it when tech is this big. We’ve seen Elizabeth Warren talk – I think Amazon is the case that she uses — where she argues that it shouldn’t be the platform and the product.
It doesn’t just affect Amazon. Think about it. Amazon has a product base where they basically have a platform, but they also sell their Amazon goods. What about Apple? Apple is facing some real challenges from those guys against its Apple store. They take 3% of the revenue straight off the bat. If you think about it, very few companies have a 30% profit margin, especially it comes to like the software stuff. …… [2:12] a 3% revenue share off the top as 45 basically has 70% of the money left over to run his business, pay the …… and make a profit. So you can imagine how big a deal that is. So I think it’s going to be a very big case against all these companies.
SIMON BROWN: Obviously it’s going to take time. I remember the Microsoft case. I don’t remember, but I’ve read about the Marbel case back in the eighties, when they broke up the telcos. This does happen very, very slowly. The Facebook share price responded very positively and in fact, was up some 4%; its market cap went through a trillion dollars for the first time. As investors, we don’t have to panic, but this is something to keep a very, very close eye on if we are holding any of these big-tech stocks.
VIV GOVENDER: Almost certainly. This is not to be – it actually succeeds. Microsoft did very little to do anything to Microsoft. What it did do is it brought a lot of eyes on Microsoft. So, if you think about it, in the late nineties, early 2000s, anyone in the world, if you ask them – this is what’s going to happen in the future. There’s going to be these phones, there is going to be this mobile tech, there’s going to be all these things happening around the internet; whose company’s going to take advantage of this?
Everyone would have said Microsoft. Why didn’t Microsoft do it? One of the big reasons or the big excuses that’s been given is the fact that they had been under such heavy government scrutiny that they would have found it very difficult to actually expand into new areas. So let’s just do this new kind of internet to out there. Would Facebook, Google, and so on be as capable of actually doing anything about that if they were facing this kind of scrutiny? I don’t think they would.
SIMON BROWN: That’s a great point. I’ve actually heard Bill Gates say that after that Department of Justice case they were more careful. There were deals they didn’t look at. More than anything perhaps, Microsoft survived the Internet Explorer deal, and that was all fine – although they no longer have the dominant browser. It made them more careful going forward. So it restricts perhaps future plans more than the existing businesses right now.
VIV GOVENDER: Oh, yes, most certainly. And that’s part of the tech industry because, remember, it hasn’t been the case for the last 20 years or so. But it used to be that what you were most fearful was not your big corporate rival, it was a couple of geniuses in a garage somewhere figuring out what your next replacement was going to be. One of the reasons you haven’t seen that in the last 10, 15 years or so has been the fact that every single time somebody figures out an Instagram or a WhatsApp or whatever it may be, or a YouTube, the big guys come in and they buy out all these things. YouTube was started by somebody else. Facebook bought WhatsApp, and they bought Instagram from somebody else. Those would have been the competitors to these big companies.
SIMON BROWN: That’s a great point. We’ll leave it there. Viv Govender, portfolio manager at Rand Swiss, I appreciate the early morning.
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