Big Tech monopolies stifle innovation

The argument

The availability of capital for new tech start-ups has declined since the rise of Big Tech, and growth of innovative new businesses has slowed alongside it. The connection this argument draws between those two facts runs through investor expectations. The availability of investment capital to start-ups is contingent upon investors' confidence in the potential of new enterprises to generate large returns on investment by increasing the company's value well beyond its worth at the time of investment. Big Tech companies dampen this confidence by preventing start-ups from growing past a point where they become targets for acquisition (or decimation) by Big Tech. The ceiling is what matters here, rather than any individual deal: if the realistic best case for a promising company is being bought at a moderate valuation, and the realistic worst case is being crushed by an incumbent that copies what it does, then the outsized returns investors are underwriting cannot occur at all. Consequently, it has become harder for new tech companies to secure venture capital since Big Tech began to dominate the technology industry. The pattern in the figures is offered as confirmation that this is what has happened. Both the prevalence of young tech companies and the proportion of high-growth young tech companies have declined steeply since 2000. U.S. start-ups have slumped and productivity growth has slowed since 2005, and financing rounds for tech start-ups have become significantly scarcer since 2012. Each of those measures moves in the direction the mechanism predicts, and together they describe an industry in which the incumbents no longer face the challengers that would otherwise have emerged. On this account that is precisely why the Big Tech companies need to be broken up.

Premises

Counter-arguments

Opponents of breakup reply that the correlation is contested and the causation weak. Venture and startup funding actually reached record highs over the years cited, and the decline in the raw number of new firms predates Big Tech and spans the whole economy, suggesting broader causes — ageing demographics, regulation, consolidation across many sectors — rather than a tech 'kill zone.' Acquisition by a large platform is often the goal and reward for founders, providing the exits that make early investment attractive in the first place, so acquisitions can encourage rather than deter startup formation. They add that these firms invest enormous sums in R&D and that breaking them up could destroy scale efficiencies and integrated products consumers value, with no guarantee that innovation would rise.

Rejecting the premises

[Rejecting P1] VC funding for startups reached record levels over the period cited, and the decline in new-firm formation predates Big Tech and spans the whole economy, so the premise's causal link to Big Tech is disputed. [Rejecting P2] Acquisition by a large platform is frequently the intended, lucrative exit that makes early-stage investment attractive, so the prospect of being acquired can encourage rather than suppress startup formation. [Rejecting C] Because the funding and formation trends have other, economy-wide explanations, they do not establish that Big Tech monopolies stifle innovation or that breakup would revive it.