Have you ever considered just how much influence tech firms have in our world?
Well, you may want to, as the market value of the top 5 biggest tech firms in America is $ 3trn. These firms dominate many services and their economic and political power keeps growing. But, will they always hold this power and maintain wealth?
A very influential post on The Economist suggests that these firms should be worried. The fact that you can compare companies like Facebook with a firm like Standard Oil is worrisome, which may cause changes in tech firm regulations.
The post states that these firms may start to be regulated like utilities by the introduction of a regulated asset base. RAB would introduce estimating the cost of assets of a potential new entrant in the market and then calculating his profits if his returns matched his capital cost. Any existing company’s earnings would not be able to exceed the cost of capital of the potential new “entrant”.
What does the implementation of RAB mean for tech firms?
Basically, this regulation is like creating a price ceiling for returns. This would have a big blow on tech firms. Say we estimate assets of a sewage company, we’d include land, property, pipes, etc. But, estimating Facebook’s RAB would we difficult as we would have huge intangible assets such as data and research, bumping their RAB value to billions of dollars. In addition, most of these assets don’t even appear on their balance-sheets. Now, lets say the current cost of capital calculated for the tech industry was 12% . By using this regulation of calculating the “new entrant’s profit” with RAB to determine existing tech firms’ allowed earnings, Facebook’s returns would be capped at 12%, not enough to finance and support their research and development, making operating profits decrease by a whole 65% and 81% respectively (¶7)!
The authors of The Economists warn firms that even though the specific regulation of RAB might not happen, regulation as utilities is still a long-term risk, and tech bosses should bundle their services tightly or go around regulatory systems (not ethically correct in my opinion).
This post sparks very interesting questions about social media and tech that is growing in the modern world. It is a must read as it provides insight on future possibilities for us, as technology users, and for tech firms, as they may struggle to keep their monopolistic profits and power. I agree with the post in terms of a change happening in regulations as I have read many articles about privacy and sale of data and myself have become more aware of social media’s worrisome power.
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