Opinion | Why Big Tech firms Meta, Alphabet and Amazon should break up

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    Mihir A. Desai is an economist, professor at Harvard Business School and Harvard Law School, and author of “How Finance Works” and “The Wisdom of Finance.”

    It took America’s tech giants 20 years to become big tech. Now they have to divide their business into smaller units.

    Faced with persistent antitrust lawsuits, big tech companies must take the lead and split their legacy businesses from their fast-growing new businesses. This is not to benefit our customers or society, but to help our important investors and employees for the future. of these companies.

    Meta, Amazon, Google parent company Alphabet and others will follow in the footsteps of the previous generation of big players in the US. in the last two years, general electric, IBM, Johnson & Johnson and Kellogg’s have all announced or completed significant restructuring and have been split into smaller entities. There are some common motives. Managers argue that investors misunderstand and undervalue complex companies, preferring a narrower “pure play” in a single industry. Investors fear multi-sectoral companies will become bloated bureaucracies, underperforming departments, making it harder to hire the right employees, and under-allocate resources.

    These same issues plague Big Tech.examination metaIn 2022, Meta’s advertising business generated 98% of revenues of approximately $117 billion and generated operating income of $43 billion. In contrast, the company’s Metaverse efforts lost about $14 billion in operating income in 2022. Concerns over how long this subsidy will last weighed on Meta’s share price, which has fallen more than 50% since its peak.

    In reality, Meta runs two different businesses. One, a mature advertising business with little subscriber growth, is investing heavily in a new operating system for the Internet based on virtual reality. Rather than forcing investors to own both, Meta will use the strength of its advertising business to allow him to borrow $130 billion at leisure and contribute that cash to his Metaverse efforts to split the company. can do.

    Effectively, this debt burden and advertising business with tons of cash for the metaverse business will only accelerate the cross-subsidies needed over the next decade. But the management teams of each of the two new companies will be able to specialize in the unique challenges they face, and the advertising business will no longer fund the Metaverse effort indefinitely. The Metaverse Project does not suffer from being tied up in the controversial advertising business.

    Same problem with Amazon. (Amazon founder Jeff Bezos owns his The Post.) The company is both an e-commerce giant and a leading cloud computing business via Amazon Web Services (AWS). Again, the two initiatives are very different, with very different profitability profiles, customers, competitors, and growth trajectories. worth of the entire Amazon enterprise. Additionally, AWS competes with Microsoft’s Azure and Google Cloud for the business of retailers who don’t want to hand over their cloud computing business to competitors. Essentially, breaking up Amazon gives investors, customers, and employees the option to focus on the entities that serve them the most.

    Alphabets are the most complex, but have similar logic.

    First, Alphabet has allocated tens of billions of dollars to various organizations. “Moonshot” project It is outside the basic advertising business with limited revenues, indicating poor capital allocation. Second, the company’s basic search business is degraded. Surprisingly Caught flat ChatGPT built into Bing by Microsoft. Finally, the DOJ’s antitrust lawsuit against Google’s advertising business is unlike any other. Speculative antitrust initiatives, is a formidable one based on the logic of traditional consumer welfare. It’s hard to argue against and could own the company for 10 years. Separating the search business from the advertising platform business would be harder than splitting Amazon and Meta. But if Alphabet can find a way to split up, the company could avoid years of costly legal battles and better focus its search, YouTube, and ad exchange businesses.

    Meta, Amazon, and Google have been hugely successful over the last 20 years.Maintaining that performance in its current form seems unlikely given how rare such things are Persistence of performance can.Although the threat may seem like unwanted attention from legislators and regulators pushing the new (and often Suspect) A more serious danger than antitrust theory is the complacency and poor decisions that arise from abundant cash flow.

    In this sense, Apple provides an interesting counter-example. A decade ago, Tim Cook was accused of failing to diversify into new areas and turning Apple into an electric car company or enterprise his software his business. Instead, Apple returned historical amounts of cash to shareholders through share buybacks and continued to focus on its core business. Today, Apple is a success with its shareholders and does not appear on the regulator’s radar screen to the same extent as other tech giants.

    Such focus and discipline on capital allocation is exactly what Meta, Alphabet and Amazon need. Dismantling is difficult. This is especially true for relatively young, founder-driven companies that have seen astronomical growth. But it’s much better than a decade of lawsuits, poor investor performance, a waning ability to attract top talent, and a slow road to mediocrity.


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