Enterprise

Everything you need to know about the congressional big tech hearing

Why are Apple, Amazon, Facebook, and Google in trouble?

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Congressional hearings are uniquely American, and you’ve surely seen them in a movie or show. It’s often the crux, dramatizing a room filled with politicians, media, and the country. Everyone’s attention is glued to the protagonist, who sits in front of the committee and answers their hard-hitting questions. If you really want to see a classic, I’d recommend seeing The Aviator.

Coming back to the point, a similar hearing has grabbed the world’s attention. Often referred to as “big tech”, American internet giants Apple, Amazon, Facebook, and Google are working hard to defend their enormous size, arguing that their dominating position in the market doesn’t stifle competition.

In simpler terms, “big tech” has a market capitalization of more than US$ 4.85 trillion. And, this gives them enough clout to discourage competition and continue their virtual monopoly. When companies become too big, the consequences can be radical since the government will find it harder to regulate them.

Data is the new oil

The American economy has witnessed similar situations before and there are precedents available to curtail a company’s influence. For instance, Standard Oil was among the world’s first and largest multinational companies. It started when oil was a fresh discovery and the world was slowly realizing the fuel’s potential. Officially started in 1870, it grew exponentially in the coming years by acquiring smaller companies, controlling market supply, and chasing maximum efficiency while ignoring antitrust regulations.

By 1890, Standard Oil controlled almost 90 percent of the refined oil business in the US. In the coming years, the company would restructure itself into a holding company that controls more than 40 smaller companies. While these smaller companies were separate entities, all profits went to one parent company. In turn, the parent ensured all the kids work in tandem to improve efficiency and control market dynamics.

Finally, in 1911, Standard Oil’s control came to an end after the US Justice Department prosecuted it via the Sherman Antitrust Act. Standard Oil was dismantled into smaller companies, again. But, they had an independent board of directors and each was left to fend for its own. It essentially meant that Standard Oil, as one entity, no longer existed and the market had dozens of autonomous companies. For consumers, this ensured healthy competition and innovation, while supply chains and associated trade partners were no longer dealing in a pseudo-mafia regime.

Standard Oil of New Jersey and Standard Oil of New York are predecessors of ExxonMobil, Standard Oil of Kentucky became Chevron, and South Penn Oil is known as Shell today. A similar breakup was enforced on telecom giant Bell Systems in 1982 when the parent AT&T, was split into regional companies. One of these sping-offs was Bell Atlantic, today called Verizon.

Big tech and its influence

Data is equivalent to oil or gold. The three together are fundamental pillars of the twenty-first century. Just like Standard Oil started out at the cusp oil discovery, Amazon and Google can be called the early pioneers of the consumer internet.

Equipped with instant connectivity, Amazon created online shopping as we know it today. The internet becomes a stressful place without Google helping us discover basic information. Facebook is quite literally our personal life and everyone around you uses it.

Lastly, Apple is the only significant hardware maker here, but it has surprisingly more control over software thanks to its closed eco-system. These companies are very similar to Standard Oil and can pose a serious threat to encouraging competition. Free market principles also go out the window when someone has majority control.

Apple and its greed for more

The Cupertino-based giant revolutionized music playback thanks to the iPod and iTunes. When Apple sold you the iPod, it made a profit. But you need music to utilize your purchase. So, you buy a track from iTunes, that’s also controlled by Apple. Ultimately, you end up paying more and more to the same company. Thankfully, the system is partially restricted and you can sideload MP3 files, but it’s a cumbersome and discouraging process.

Coming to 2020, apps are everywhere. Apple’s App Store comes pre-installed on iOS devices shipped in the last decade. Apple takes a 30 percent cut on whatever you sell via the App Store. Whether it’s an app or an in-app purchase, Apple will get its share of the revenue. Apple says the store acts as a perfect marketplace for developers as well as users. But, how can a newly started developer or company afford to give away 30 percent of its revenue to Apple as a “service charge?”

Keep in mind, this “big tech” has more than US$ 190 billion in cash. Spotify has publicly called-out Apple for this practice numerous times because it sells monthly streaming plans on its app and can’t afford to part a huge chunk of the payment to Apple. Instead of using Apple’s payment system, it manages its own subscription to save “Apple tax”, an informal slang for Apple’s revenue cut. Even Netflix follows a similar approach. The point is, bigger companies are capable of bypassing Apple’s ecosystem lock, albeit with considerable expenses. Then how can new competition come up from scratch?

It’s practically a monopoly because the developer has two options — take it or leave it. Now, if you’re in the market to sell your app, all iOS devices are out of scope if you don’t adhere to Apple’s demands. And, if you skip the App Store, you’re missing out on all the potential revenue. If you agree with Apple, by an optimistic outlook, you’ll at least get 70 percent of something as revenue? This is the basic working of a monopoly.

The operating system market is a duopoly controlled by Apple’s App Store and Google’s Play Store. While third-party app stores like Amazon App Store, AppGallery, and more exist, ask yourself when was the last time you downloaded something off them?

In Apple’s defense, the company feels it should be able to collect its 30 percent share because it created the current ecosystem. With the launch of the iPhone, the company created a virtual marketplace out of nothing. The company invested in building an ecosystem that has stood the test of time and brings both, the user as well as developer, on the same page.

The company announced earlier this year that it has paid US$ 155 billion to developers since 2008. That’s a lot of money. There’s no denying that Apple kickstarted the “app as a product” philosophy, creating a brand new arena in the digital age. But is it’s control justified after a decade?

Apple has always been conservative about its ecosystem, but it’s efforts to accomplish that are often far-fetched. Recently, the company barred Xbox Gamepass on iOS devices because it “it can’t review every game” that’s being offered by Microsoft. Going by this logic, Apple should also screen or review every show or album that debuts on OTT (over the top) players like Netflix, Prime Video, Spotify, and more.

It’s clear that Apple wants to defend its Apple Arcade subscription service and doesn’t want Microsoft to steal the show with Project xCloud. This means that Xbox Gamepass will be available on Android only. If Apple can strong-arm a giant like Microsoft, isn’t it very obvious that smaller players stand no chance against the brand?

Amazon and its influence on customers

Starting out with just books, today the site has millions of products listed, ranging from a unique screw to a full-fledged air conditioner. What started out as an online marketplace has grown into a tech giant that has dominance in cloud computing, voice assistants, and even video streaming.

Critics say Amazon has frequently used its funding to undercut the competition. It took some losses in the short-term by trying to retain users. Once the user was accustomed to Amazon, a process that lets them avoid visits to a store, the loss turned into profit. With a yearly Prime subscription, you’d get free delivery on the smallest of products. Eventually, the user has recovered its Prime subscription fee in terms of convenience and Amazon has processed more orders than ever.

This model ensured that Amazon has an edge over everyone else. The site closely monitors your movement on the site and can intelligently suggest new products to purchase. The more one buys, the more Amazon earns. And, so do the sellers. This seems like a fair game.

But then, sellers realized Amazon has started recognizing categories that can be directly dominated. The user data they collect shows them precisely how much demand a product has, the price vs sales comparisons, and more. It leveraged this rich and unique data to launch its own product brand called Amazon Basics. If you’d normally buy a USB-C wire for US$ 10, Amazon Basics provided that for a lesser price. And, the Amazon tag garnered trust, luring the buyer away from third-party sellers to Amazon’s in-house accounting.

Now, sellers realized that Amazon used its internal sales data to indirectly push out the competition. Amazon follows a similar strategy in other markets like India. Obviously, a seller can try to sell directly via their own platform using simpler tools like Shopify, but will that match the reachability of Amazon? Can any individual seller match Amazon’s marketing and brand recognition?

The company grew as an e-commerce website but is involved in much more than selling books today, the prime reason why it’s one of the “big tech.” The marketplace’s dominant position helped it start brand new investment streams like Kindle hardware, Alexa speakers, and AWS cloud computing. The e-commerce model had worked very well and investors were fine with the company diversifying, even if it meant losing some projects like the Fire Phone.

Today, the company is bigger than physical establishments like Walmart. It’s going up against eBay, Flipkart, Lazada, AliExpress, and Rakuten in the e-commerce space. AWS is challenging Microsoft Azure, Google Cloud, as well as Alibaba Cloud. Alexa is fighting against Google Assitant, Siri, and Cortana. And lastly, Prime subscription is taking on Netflix and Spotify in one go.

What’s common?

In this article, the most frequently mentioned companies are Apple, Amazon, Google, and Microsoft. Facebook sits in an entirely different vertical, filled with its own unique challenges. However, if you’re trying to do something on the internet, you’ll end up using one of their technology or platform in some way or the other.

And that’s the whole point of the “Big Tech” debate. These companies have grown too much, too quickly. They dominate the publicly known internet and have barely left any space for newcomers. Even if someone dares to do the unthinkable, they’ll be either acquired or pushed into infinite losses.


This is Part 1 of the series. Read Facebook and Google’s involvement in Part 2.

Enterprise

iPhone sales surge like never before despite raging pandemic

Apple’s daily revenue was $1 billion in Q2

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Apple reported record revenues of US$ 89.6 billion for Q2 2021, an increase of 54 percent year over year. The company’s iPhone, iPad, and Mac lineups are producing strong growth.

The iPhone range, headlined by the iPhone 12 quartet, brought in US$ 48 billion in revenue alone between January and the end of March. iPhone revenue in the previous quarter was roughly US$ 29 billion, marking a rise of 66 percent. iPad sales came in at US$ 7.8 billion while Mac sales were US$ 9.1 billion.

Apple said it would increase its dividend by 7 percent to US$ 0.22 per share and authorized $90 billion in share buyback, which is significantly higher than last year’s US$ 50 billion.

The subscription services, which include the Apple One bundles, also hit an all-time high with US$ 16.9 billion in sales. These services include Apple Music, Apple TV+, Apple Arcade, and more. Wearables like AirPods and the Apple Watch had a record-setting quarter, too, drawing in US$ 7.8bn.

Apple CEO, Tim Cook, said on a conference call with analysts that all five of the best-selling smartphones in the U.S. during the quarter were iPhones. Though, Apple did not disclose official guidance for what it presumes in the quarter ending in June.

Apple sales grew at least 35 percent in every region, and while the majority was still in the Americas, China played a pivotal role too. The company did say that future growth could be hampered due to the acute shortage of semiconductors. Its new M1 chipset is class-leading and designed on the latest ARM-based architecture. This adds a layer of complexity that could slow down shipments.

Apple said it didn’t know how long the chip shortage would keep supply from meeting demand, but it’s sure that the demand far outweighs the supply.

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Enterprise

Jeff Bezos says Amazon should treat its workers in a better way

His final letter to shareholders before stepping down as CEO

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Amazon

Amazon CEO Jeff Bezos used his final letter to Amazon shareholders to focus on employee well-being and its significant carbon footprint. The transition is closely watched by everyone as the legendary co-founder hands over the reigns to Andy Jassy.

The e-commerce giant has always been customer-centric, which was the prime reason it was able to garner trust and support. Now, Bezos thinks it time to put the company’s workforce on priority.

Jassy, the former head of Amazon Web Services, is taking over the top job so that Bezos can step back from day-to-day responsibilities. It’ll now be his responsibility to ensure Amazon continues its growth trajectory and sustains the pandemic-induced boom.

It’s currently hounded by regulators, labor unions, and activists around the world. There are multiple allegations — unfair treatment of warehouse workers, stifling competition, discouraging unionization, and shortchanged partners. It’s a long list, and the pressure keeps mounting as the company’s stock increases in value.

Bezos also talked about creating wealth for shareholders, the fact that climate change is real, the recent warehouse union vote in Bessemer, Alabama, US. Among his proposals are new staffing rotations to reduce physical stress at warehouses. He said that 40 percent of Amazon’s work-related injuries are musculoskeletal disorders (MSDs), such as strains and sprains from repetitive motions. These injuries tend to occur in the first six months of an employee’s tenure.

The founder also touted the company’s decision to increase Amazon’s minimum wage to US$ 15 per hour, a rate that labor groups have been advocating for the longest of time.

When it comes to workers who can’t consistently meet the company’s expectations, he says Amazon provides coaching to them, with 82 percent of it being “positive.” He also added that less than 2.6 percent of the staff was fired for not meeting the job expectations.

Amazon is also trying to cut down its carbon emissions and has pledged to have 100,000 electric delivery vans by 2030. Bezos has personally committed US$ 10 billion in grants for climate-oriented companies and organizations.

Read Also: Everything you need to know about the congressional big tech hearing

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Enterprise

Why is Amazon starting a $250 million venture fund in India?

Aims to bring 1 million offline stores online by 2025

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Amazon has announced a US$ 250 million venture fund called Amazon Smbhav Venture Fund that’ll invest in small and medium-sized businesses. The goal is to boost India’s export by using technology and the marketplace’s reach.

Amazon Smbhav will be focusing on the digitization of small businesses, agri-tech innovations to raise farmer productivity, and health tech for quality universal healthcare. The fund was announced at Amazon India’s annual Smbhav Summit.

It intends to tap offline sellers and professionals via the fund and on onboarding a million shops by 2025. Another initiative is “Spotlight NorthEast,” which will bring 50,000 artisans, weavers, and small businesses online from India’s North-Eastern states. The region is known for its local produce like honey, tea, and spices.

The announcement came at a fireside chat at the summit between Andy Jassy, incoming CEO of Amazon and Amit Agarwal, Global Senior VP and Country Head, Amazon India. They also revealed the first bet Amazon was making through the new fund — invoice discounting platform M1xchange, in which it has led a $10 million investment.

Amazon said it created close to 300,000 jobs since January 2020 and one million in total. It also boasted of having almost 70,000 sellers, exporting Indian goods to other markets totaling US$ 3 billion in sales.

The timing of Amazon India’s announcement is key because the e-commerce companies have been barred from delivering in the state of Maharashtra amid a Coronavirus-led curfew. While the restrictions are regional, businesses are unable to get necessary and basic supplies. In a work-from-home world, getting an emergency mice/keyboard or mattress should be easy via digitization, but there are antitrust concerns.

Due to a lockdown, offline sellers cannot operate and thus, don’t want online businesses to eat their share. The Narendra Modi-led government has historically sided with the offline traders since they constitute a majority of India’s market. The offline market is still the king, and the gap between the two is very substantial.

If online players operate exclusively for too long, they’ll start gobbling up market share gradually, killing the smaller businesses. While the aim is to maintain a level-playing field, the current rules aren’t helping anybody at the end of the day. The region also fails to collect indirect taxes over the possible transactions, leading to a cash crunch while the pandemic rages.

The FDI (Foreign Direct Investment) rules for the retail market were changed in 2019, meaning Amazon India could no longer directly sell its products. It had to act like a marketplace to maintain healthy competition since 100 percent FDI is allowed in e-commerce as a tech platform, but not as a retailer.

Thanks to the fund, Amazon can show its commitment to India and its initiatives to encourage online trade. India’s new farm laws also make it easier for private companies to invest in agriculture or partner with farmers for contracts.

Amazon had announced an investment of US$1 billion in January 2020 and its purpose was also the same — digitizing India’s small and medium businesses. Founder Jeff Bezos had said back then, “We are doing this now because it is working. And when something works you should double down on it.”

For now, the concerns of a monopoly are diminished because Amazon is going up against India’s homegrown Flipkart, which Walmart now backs. Reliance is also eyeing this segment and has already kicked off a hyperlocal service called JioMart. Lastly, many other retailers like Dmart, Tata CliQ + Bigbasket, and Grofers are available.

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