It’s no secret that the current generation of giant tech companies inhabiting Silicon Valley are some of the most powerful corporations which the United States has ever seen. Even when adjusted for inflation, the net income of companies like Apple, Microsoft, Facebook and Google dwarf the annual average earnings of Standard Oil, long considered to be the classic example of a monopoly to be broken up under the terms of the Sherman Antitrust Act.
Although it’s not illegal to earn a profit, unfair business practices in the pursuit of holding a monopoly over an entire industry led to the breakup of Standard Oil, especially the rebates from railroad companies for oil shipments which substantially lowered Standard Oil’s transportation costs relative to its much smaller competitors. Recent academic research has suggested that, while the U.S. government acted appropriately to stop the cartelization of an industry, Standard Oil was engaging in typical capitalist activity in securing better deals which optimized oil shipments. This would seem somewhat less nefarious than an outright copying technologies from smaller competitors in an effort to stave off competition.
Unfortunately, that seems to be exactly what’s been playing out in the current economic landscape for the consumer tech industry. There is a growing list of examples of tech giants who have been incorporating popular features developed by much smaller players, helping them maintain a market domination of historic proportions. Often, such technological copycatting comes just as the smaller competitor is showing signs of scaling up, such as the rampant copying of the Snapchat social media platform by Facebook coinciding with Snap Inc.’s disappointing stock decline after its initial public offering (IPO).
Snap is not the only recent example of a small tech company being crowded out by a much larger competitor moving into the smaller firm’s space just as it goes public. Through 2017, many news outlets were reporting on the poor performance of meal preparation firm Blue Apron in the months after it released its first shares in an IPO. Blue Apron went public last June at $10 per share, a pretty drastic reduction from the company’s original plans to offer stock at $15 to $17 per share at the IPO. That drop in the IPO share price came days after e-commerce giant Amazon announced that it had agreed to purchase the upscale grocery market company Whole Foods for $13.4 billion. Weeks after the Whole Foods purchase, Amazon was applying for trademarks to be used in commerce on prepared food kits. By October, Blue Apron cut its workforce by up to 300 employees, a 6 percent reduction to its total staff.
Last September, tech news outlets were reporting that Facebook was developing a standalone video chat app called Bonfire that would support video chat sessions including up to eight participants. This new app mimics features of Houseparty, a video chat app developed by San Francisco-based startup Life On Air. Facebook started developing its Bonfire app after inviting the developers of Houseparty to its Menlo Park headquarters in the summer of 2016. In February 2017, Facebook started surveying those users who also had Houseparty accounts, even going so far as to offer $275 Amazon cards to teens visiting Facebook’s headquarters to participate in the study. Facebook had also copied “living room” branding employed by Houseparty into its Messenger platform.
In August 2016, e-commerce giant Amazon.com invested $5.6 million into a startup known as Nucleus, a firm developing a Wi-Fi home intercom and video conferencing product. The investment reportedly came from the firm’s Alexa Fund for financing companies looking to develop products utilizing Amazon’s digital voice assistant technology. The following May, Amazon unveiled the Echo Show, an updated version of its Echo smart speaker which included a touchscreen and a camera, enabling a user to make video calls. Nucleus CEO Johnathan Frankel was reportedly shocked to find that Amazon, previously a close partner, decided to become a direct competitor.
Consumer tech giant Apple was late to the wearable device market, first releasing the Apple Watch to consumer markets in April 2015. The smart watch, which came with fitness tracking features, came to market at a later point in time than other fitness tracking wearables from the likes of Fitbit and Jawbone. 2015 was the same year that Fitbit launched its IPO, raising $41.6 billion in capital for the company. Fitbit also reportedly led the wearables market with shipments of 18 million fitness trackers that year. In 2018, the story is much different. Last July, news came out that Jawbone would be liquidizing its assets and shuttering its operations. Recent analysis of worldwide shipments of wearable device units shows that in 2017, Apple overtook Fitbit as the top seller of those devices, selling 17.7 million units compared to Fitbit’s 15.4 million units. The previous year, Fitbit sold 22.5 million units to Apple’s 11.3 million units, so this shift in market dominance in favor of a well-entrenched tech giant has been swift.
Interestingly, copying technology, even patented technology, has been improving the fortunes of the current generation of tech giants even from their earliest days. Google has been offering targeted advertising services for years despite the fact that B.E. Technology is the original developer and patent holder of such technologies. However, thanks to the Patent Trial and Appeal Board (PTAB), Google was able to strike down the targeted advertising patents which B.E. Tech asserted. Apple was able to use the PTAB to achieve similar success over Smartflash, which had invented a handheld multimedia terminal and a rules system for accessing digital content on those terminals which is in use in every iPhone today.
In the early 20th century, the U.S. federal government was getting involved to bust up monopolies like Standard Oil in the name of improving competition in the marketplace. In the early stages of the 21st century, this nation has gone far in the opposite direction, creating massive uncertainty over patentability in valuable tech sectors which allows today’s tech titans to profit from a lack of competition. It’s hurting the ability of small competitors to scale up profitably in our own country and, at the same time, helping encourage greater startup funding in China in important sectors like artificial intelligence. As long as efficient infringer lobby organizations continue to beat the drum on patent reform, we can expect the same to continue.