Big tech firms have dug a moat

As US 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 US 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 US 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 US warehouses that handle the company’s online orders, compared with Amazon’s more than 100 US package centers.
If a company the size of Walmart — which sells ab-out 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?
For all the claims that Amazon copies hot-selling products sold on its websites, or unfairly uses data about shoppers’ purchases and searches for its own ends, it is Amazon’s network of warehouses and its ever-expanding logistics machine that give it an advantage few competitors can match.
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 computerised 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 and Google to go their own way. This year, Google has said it will spend more than $13 billion just in the US on data centers and other real estate. (All that sophisticated computing infrastructure isn’t infallible. Facebook confirmed that people were having problem with videos and photos on Facebook and Instagram.)
In the last 12 months, the five biggest US technology companies recorded nearly $90 billion of combined capital spending — big-ticket item such as computer data centers, internet cables, specialised equipment to build computer chips, warehouses and other real estate. The figure has more than doubled since 2015, Bloomberg data show.

—Bloomberg

Shira Ovide is a Bloomberg Opinion columnist covering technology. She previously was a reporter for the Wall Street Journal.

Leave a Reply

Send this to a friend